Advertising in Specialized Markets: Example from the US Pharmaceutical Industry
AbstractThis 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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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 610.
Length: 26 pages
Date of creation: 28 Feb 2005
Date of revision: 10 Nov 2005
Note: previously circulated as "Advertising in Specialized Markets: Example from the US Pharmaceutical Industry"
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More information through EDIRC
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:
- NEP-ALL-2005-03-06 (All new papers)
- NEP-BEC-2005-03-06 (Business Economics)
- NEP-COM-2005-03-06 (Industrial Competition)
- NEP-HEA-2005-03-06 (Health Economics)
- NEP-IND-2005-03-06 (Industrial Organization)
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.:
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- repec:reg:wpaper:425 is not listed on IDEAS
- 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.
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12/2006, Oslo University, Department of Economics.
- Amrita Bhattacharyya, 2005. "Competition and Advertising in Specialized Markets: A Study of the U.S. Pharmaceutical Industry," Boston College Working Papers in Economics 624, Boston College Department of Economics, revised 10 Nov 2005.
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