Healthy Skepticism Library item: 19391

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: Journal Article

Berndt E, Pindyck R, Azoulay P
Consumption externalities and diffusion in pharmaceutical markets: antiulcer drugs
The J Ind Econ 2003; 51:(2):243-270
http://www.nber.org/papers/w7772

Abstract:

We examine the role of consumption externalities in the demand for pharmaceuticals at both the brand level and over a therapeutic class of drugs. These effects emerge when use of a drug by others affects its value, and/or conveys information abut efficacy and safety to patients and physicians. This can affect that rate of market diffusion for a new entrant, and can lead to herb behavior whereby a particular drug can dominate the market despite the availability of close substitutes. We use data for H2-antagonist antiulcer drugs to estimate a dynamic demand model and quantify these effects. The model has three components: an hedonic price equation that measures how the aggregate usage of a drug, as well as conventional attributes, affect brand valuation; equations relating equilibrium market shares to quality-adjusted prices and marketing levels; and diffusion equations describing the dynamic adjustment process. We find that consumption externalities influence both valuations and rates of diffusion, but that they operate at the brand and not the therapeutic class level.