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The Effects of Pharmaceutical Marketing and Promotion on Adverse Drug Events and Regulation

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  • Guy David
  • Sara Markowitz
  • Seth Richards

Abstract

This paper analyzes the relationship between postmarketing promotional activity and reporting of adverse drug events by modeling the interaction between a welfare maximizing regulator (the FDA) and a profit maximizing firm. In our analysis demand is sensitive to both promotion and regulatory interventions. Promotion-driven market expansions enhance profitability yet may involve the risk that the drug would be prescribed inappropriately, leading to adverse regulatory actions against the firm. The model exposes the effects of the current regulatory system on consumer and producer welfare. Particularly, the emphasis on safety over benefits distorts the market allocation of drugs away from some of the most appropriate users. We then empirically test the relationship between drug promotion and reporting of adverse reactions using an innovative combination of commercial data on pharmaceutical promotion and FDA data on regulatory interventions and adverse drug reactions. We provide some evidence that increased levels of promotion and advertising lead to increased reporting of adverse medical events for certain conditions.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14634.

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Date of creation: Jan 2009
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Publication status: published as Guy David & Sara Markowitz & Seth Richards-Shubik, 2010. "The Effects of Pharmaceutical Marketing and Promotion on Adverse Drug Events and Regulation," American Economic Journal: Economic Policy, American Economic Association, vol. 2(4), pages 1-25, November.
Handle: RePEc:nbr:nberwo:14634

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References

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  1. Brekke, Kurt R. & Kuhn, Michael, 2003. "Direct-to-Consumer Advertising in Pharmaceutical Markets," Working Papers in Economics, University of Bergen, Department of Economics 05/03, University of Bergen, Department of Economics.
  2. repec:reg:wpaper:425 is not listed on IDEAS
  3. Nava Ashraf & James Berry & Jesse M. Shapiro, 2007. "Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia," NBER Working Papers 13247, National Bureau of Economic Research, Inc.
  4. Rizzo, John A, 1999. "Advertising and Competition in the Ethical Pharmaceutical Industry: The Case of Antihypertensive Drugs," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 42(1), pages 89-116, April.
  5. Dehez, Pierre & Jacquemin, Alex, 1975. "A Note on Advertising Policy under Uncertainty and Dynamic Conditions," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 24(1), pages 73-78, September.
  6. Niklas Rudholm, 2004. "Approval times and the safety of new pharmaceuticals," The European Journal of Health Economics, Springer, Springer, vol. 5(4), pages 345-350, November.
  7. Toshiaki Iizuka & Ginger Zhe Jin, 2005. "The Effect of Prescription Drug Advertising on Doctor Visits," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 14(3), pages 701-727, 09.
  8. Olson, Mary K., 2004. "Are novel drugs more risky for patients than less novel drugs?," Journal of Health Economics, Elsevier, Elsevier, vol. 23(6), pages 1135-1158, November.
  9. Mary K. Olson, 2002. "Pharmaceutical Policy Change and the Safety of New Drugs," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 45(S2), pages 615-642.
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Cited by:
  1. Mary Olson, 2013. "Eliminating the U.S. drug lag: Implications for drug safety," Journal of Risk and Uncertainty, Springer, Springer, vol. 47(1), pages 1-30, August.

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