Working Paper: NBER ID: w17162
Authors: Guy David; Sara Markowitz
Abstract: The extent of pharmaceutical advertising and promotion can be characterized by a balancing act between profitable demand expansions and potentially unfavorable subsequent regulatory actions. However, this balance also depends on the nature of competition (e.g. monopoly versus oligopoly). In this paper we model the firm's behavior under different competitive scenarios and test the model's predictions using a novel combination of sales, promotion, advertising, and adverse event reports data. We focus on the market for erectile dysfunction drugs as the basis for estimation. This market is ideal for analysis as it is characterized by an abrupt shift in structure, all drugs are branded, the drugs are associated with adverse health events, and have extensive advertising and promotion. We find that advertising and promotion expenditures increase own market share but also increase the share of adverse drug reactions. Competitors' spending decreases market share, while also having an influence on adverse drug reactions.
Keywords: Pharmaceutical Advertising; Competition; Regulatory Actions; Adverse Drug Events
JEL Codes: I0; K0; K2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased advertising and promotion expenditures (M37) | enhance a drug's own market share (L65) |
| increased advertising and promotion expenditures (M37) | increase the share of adverse drug reactions (ADEs) (C22) |
| competitors' spending (L13) | decrease market share (D49) |
| increased DTCA expenditures (H51) | increase in the number of ADEs (C22) |