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Advertising in Specialized Markets: Example from the US Pharmaceutical Industry

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Author Info
Amrita Bhattacharyya () (Boston College)
Abstract

This paper studies the usefulness of advertising to both consumers and experts in specialized markets like the prescription drugs, travel and real-estate markets where the consumers' purchasing decisions are influenced by the experts (e.g., doctors, travel agents and real-estate agents). Inspired by the features of the prescription drugs market the study shows that direct-to-consumer-advertising (DTCA) does not substitute for advertising directed to physicians even when physician-advertising is only persuasive in nature. Furthermore, the paper analyzes possible advertising equilibriums in a two-firm setting and finds that it is possible to have a sub-game perfect, non-symmetric Nash Equilibrium in which only one firm advertises to the consumers and the other firm becomes a free-rider when, (i) the number of patients who are aware of treatment is very low, and (ii) there are very few patients who insist on a particular drug. Otherwise, for familiar diseases a non-advertising equilibrium is most likely. Finally, consumer advertising can have welfare improving implications depending on the disease types and patient characteristics.

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Publisher Info
Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 610.

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Length: 26 pages
Date of creation: 28 Feb 2005
Date of revision: 10 Nov 2005
Handle: RePEc:boc:bocoec:610

Note: previously circulated as "Advertising in Specialized Markets: Example from the US Pharmaceutical Industry"
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Related research
Keywords: advertising; DTCA; prescription; expert; Nash equilibrium;

Find related papers by JEL classification:
L0 - Industrial Organization - - General
M3 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising
I0 - Health, Education, and Welfare - - General

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Toshiaki Iizuka, 2004. "What Explains the Use of Direct-to-Consumer Advertising of Prescription Drugs?," Journal of Industrial Economics, Blackwell Publishing, vol. 52(3), pages 349-379, 09. [Downloadable!] (restricted)
  2. Berndt, Ernst R, et al, 1995. "Information, Marketing, and Pricing in the U.S. Antiulcer Drug Market," American Economic Review, American Economic Association, vol. 85(2), pages 100-105, May. [Downloadable!] (restricted)
  3. Meredith B. Rosenthal & Ernst R. Berndt & Julie M. Donohue & Arnold M. Epstein & Richard G. Frank, 2003. "Demand Effects of Recent Changes in Prescription Drug Promotion," Forum for Health Economics & Policy, Berkeley Electronic Press, vol. 6. [Downloadable!]
  4. Meredith B. Rosenthal & Ernst R. Berndt & Julie M. Donohue & Arnold M. Epstein & Richard G. Frank, 2003. "Demand Effects of Recent Changes in Prescription Drug Promotion," NBER Chapters, in: Frontiers in Health Policy Research, Volume 6, pages 1-26 National Bureau of Economic Research, Inc. [Downloadable!]
  5. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213. [Downloadable!] (restricted)
  6. Hurwitz, Mark A & Caves, Richard E, 1988. "Persuasion or Information? Promotion and the Shares of Brand Name and Generic Pharmaceuticals," Journal of Law & Economics, University of Chicago Press, vol. 31(2), pages 299-320, October.
  7. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Blackwell Publishing, vol. 44(3), pages 465-91, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sorisio, Enrico & Strøm, Steinar, 2006. "Innovation and market dynamics in the EPO market," Memorandum 12/2006, Oslo University, Department of Economics. [Downloadable!]
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