Advertising and Competition in the Ethical Pharmaceutical Industry: The Case of Antihypertensive Drugs*

This paper uses data on the majority of name‐brand antihypertensive drugs marketed in the United States during 1988–93 to test the hypothesis that advertising decreases the price elasticity of demand in the pharmaceutical industry. This is the first study to directly estimate the effects of drug product promotion on the price elasticity of demand in this industry. We find strong evidence of an advertising effect. In particular, detailing efforts (the salient means for product promotion in this industry) systematically lower price sensitivity. Given the inverse relationship between elasticity of demand and price, it is likely that consumers pay higher prices as a result of the advertising that occurs in this industry. Our findings are thus consistent with Hurwitz and Caves, who find evidence that advertising inhibits entry into this market but in contrast to earlier research that found no anticompetitive effect.

[1]  R. Bond,et al.  Sales, Promotion and Product Dif-ferentiation in Two Prescription Drug Markets , 1977 .

[2]  R. Zeckhauser,et al.  Advertising And The Price, Quantity And Quality Of Primary Care Physician Services , 1992 .

[3]  K. Arrow,et al.  OPTIMAL ADVERTISING POLICY UNDER DYNAMIC CONDITIONS , 1962 .

[4]  Ernst R. Berndt,et al.  The practice of econometrics : classic and contemporary , 1993 .

[5]  L. Telser,et al.  The Theory of Supply with Applications to the Ethical Pharmaceutical Industry , 1975, The Journal of Law and Economics.

[6]  M. Bowman,et al.  Changes in drug prescribing patterns related to commercial company funding of continuing medical education. , 1988, The Journal of continuing education in the health professions.

[7]  Marjorie A. Bowman,et al.  The impact of drug company funding on the content of continuing medical education , 1986 .

[8]  Richard E. Caves,et al.  Persuasion or Information? Promotion and the Shares of Brand Name and Generic Pharmaceuticals , 1988, The Journal of Law and Economics.

[9]  J. Vernon.  Concentration, Promotion, and Market Share Stability in the Pharmaceutical Industry , 1971 .

[10]  Henry G. Grabowski,et al.  Brand Loyalty, Entry, and Price Competition in Pharmaceuticals after the 1984 Drug Act , 1992, The Journal of Law and Economics.

[11]  David S. Salkever,et al.  Pricing, Patent Loss and the Market for Pharmaceuticals , 1991 .

[12]  W P McKinney,et al.  Attitudes of internal medicine faculty and residents toward professional interaction with pharmaceutical sales representatives. , 1990, Journal of the American Medical Association (JAMA).

[13]  Richard E. Caves,et al.  Patent Expiration, Entry, and Competition in the U.S. Pharmaceutical Industry , 1991 .

[14]  W. S. Comanor,et al.  The political economy of the pharmaceutical industry. , 1986, Journal of economic literature.

[15]  Frederic M. Scherer,et al.  Pricing, Profits, and Technological Progress in the Pharmaceutical Industry , 1993 .

[16]  R. Zeckhauser,et al.  Advertising and Entry: The Case of Physician Services , 1990, Journal of Political Economy.

[17]  M. Hill,et al.  Report of the Task Force on the Availability of Cardiovascular Drugs to the Medically Indigent. , 1992, Circulation.

[18]  Bang-Hun Lee.  Treatment of Hypertension: Drug Therapy , 1997 .

[19]  Z. Griliches,et al.  Characteristics of demand for pharmaceutical products: an examination of four cephalosporins. , 1997, The Rand journal of economics.

[20]  E. D. Barnhart.  Physicians Desk Reference , 1990 .

[21]  Zvi Griliches,et al.  Generics and New Goods in Pharmaceutical Price Indexes , 1993 .

[22]  M. Chren,et al.  Physicians' behavior and their interactions with drug companies. A controlled study of physicians who requested additions to a hospital drug formulary. , 1994, JAMA.

[23]  The fifth report of the Joint National Committee on Detection, Evaluation, and Treatment of High Blood Pressure (JNC V) , 1993, Archives of internal medicine.

[24]  D R Waud,et al.  Pharmaceutical promotions--a free lunch? , 1992, The New England journal of medicine.

[25]  G. Bush.  Economic Report of the President , 2001 .

[26]  David D. Van Tassel,et al.  Taking Your Medicine: Drug Regulation in the United States , 1980 .

[27]  R. Dorfman,et al.  Optimal Advertising and Optimal Quality , 1976 .

[28]  K. Leffler,et al.  Persuasion or Information? The Economics of Prescription Drug Advertising , 1981, The Journal of Law and Economics.