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The Roles of Marketing, Product Quality and Price Competition in the Growth and Composition of the U.S. Anti-Ulcer Drug Industry

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  • Ernst R. Berndt
  • Linda Bui
  • David Reiley
  • Glen Urban

Abstract

The introduction of Tagamet in the United States in 1977 represented both a revolution in ulcer therapy and the beginning of an important new industry. Today there are four prescription H2- antagonist drugs: Tagamet, Zantac, Pepcid and Axid, and they comprise a multi-billion dollar market for the treatment of ulcers and other gastric acid conditions. In this paper, we examine the determinants of sales in this market, using a carefully constructed data set made possible by IMS America. We concentrate particularly on the marketing of these drugs to physicians through detailing and medical journal advertising, and we make an innovative attempt to distinguish between 'industry-expanding' and 'rivalrous' marketing efforts. We find that the impact of total marketing on the expansion of overall industry sales declines as the number of products on the market increases. In addition, we find that the stock of industry-expanding marketing depreciates at a near-zero rate, while the stock of marketing oriented towards rivalrous market share competition depreciates at a 40% annual rate. We also find that the products' sales are affected significantly by price, quality attributes (such as number of FDA- approved indications and number of adverse drug interactions), and order of entry into the market.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4904.

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Date of creation: Oct 1994
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Publication status: published as Berndt, Ernst R., Linda T. Bui, David R. Reiley and Glen L. Urban. "Information, Marketing, And Pricing In The U.S. Antiulcer Drug Market," American Economic Review, 1995, v85(2), 100-105.
Handle: RePEc:nbr:nberwo:4904

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  1. Glen L. Urban & Theresa Carter & Steven Gaskin & Zofia Mucha, 1986. "Market Share Rewards to Pioneering Brands: An Empirical Analysis and Strategic Implications," Management Science, INFORMS, INFORMS, vol. 32(6), pages 645-659, June.
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  4. Reekie, W Duncan, 1978. "Price and Quality Competition in the United States Drug Industry," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 26(3), pages 223-37, March.
  5. Berndt, Ernst R & Wood, David O, 1979. "Engineering and Econometric Interpretations of Energy-Capital Complementarity," American Economic Review, American Economic Association, American Economic Association, vol. 69(3), pages 342-54, June.
  6. Schmalensee, Richard., 1980. "Product differentiation advantages of pioneering brands," Working papers 1140-80., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  7. Zvi Griliches, 1998. "R&D and Productivity Growth at the Industry Level: Is There Still a Relationship?," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 213-240 National Bureau of Economic Research, Inc.
  8. Cocks, Douglas L & Virts, John R, 1974. "Pricing Behavior of the Ethical Pharmaceutical Industry," The Journal of Business, University of Chicago Press, vol. 47(3), pages 349-62, July.
  9. David B. Montgomery & Alvin J. Silk, 1972. "Estimating Dynamic Effects of Market Communications Expenditures," Management Science, INFORMS, INFORMS, vol. 18(10), pages B485-B501, June.
  10. Bresnahan, Timothy F & Reiss, Peter C, 1990. "Entry in Monopoly Markets," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(4), pages 531-53, October.
  11. Leffler, Keith B, 1981. "Persuasion or Information? The Economics of Prescription Drug Advertising," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 24(1), pages 45-74, April.
  12. Gurumurthy Kalyanaram & Glen L. Urban, 1992. "Dynamic Effects of the Order of Entry on Market Share, Trial Penetration, and Repeat Purchases for Frequently Purchased Consumer Goods," Marketing Science, INFORMS, INFORMS, vol. 11(3), pages 235-250.
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Cited by:
  1. Sara Fisher Ellison & Catherine Wolfram, 2001. "Pharmaceutical Prices and Political Activity," NBER Working Papers 8482, National Bureau of Economic Research, Inc.
  2. Jonathan Skinner & Douglas Staiger, 2005. "Technology adoption from hybrid corn to beta blockers," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco.
  3. Iain M. Cockburn & Aslam H. Anis, 2001. "Hedonic Analysis of Arthritis Drugs," NBER Chapters, in: Medical Care Output and Productivity, pages 439-462 National Bureau of Economic Research, Inc.
  4. Ching, Andrew & Ishihara, Masakazu, 2007. "The Effects of Detailing on Prescribing Decisions under Two-Sided Learning," MPRA Paper 4935, University Library of Munich, Germany.
  5. Abbott, Thomas III, 1995. "Price regulation in the pharmaceutical industry: Prescription or placebo?," Journal of Health Economics, Elsevier, Elsevier, vol. 14(5), pages 551-565, December.
  6. Andrew Ching, 2000. "Dynamic Equilibrium in the US Prescription Drug Market After Patent Expiration," Econometric Society World Congress 2000 Contributed Papers 1242, Econometric Society.
  7. Ching, Andrew T., 2010. "Consumer learning and heterogeneity: Dynamics of demand for prescription drugs after patent expiration," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 28(6), pages 619-638, November.
  8. Amitabh Chandra & David Malenka & Jonathan Skinner, 2013. "The Diffusion of New Medical Technology: The Case of Drug-Eluting Stents," NBER Chapters, in: Discoveries in the Economics of Aging, pages 389-403 National Bureau of Economic Research, Inc.
  9. Ernst R. Berndt & Robert S. Pindyck & Pierre Azoulay, 1999. "Network Effects and Diffusion in Pharmaceutical Markets: Antiulcer Drugs," NBER Working Papers 7024, National Bureau of Economic Research, Inc.
  10. Marco Ottaviani, . "Monopoly Pricing with Social Learning," ELSE working papers 035, ESRC Centre on Economics Learning and Social Evolution.
  11. Venkataraman, S. & Stremersch, S., 2007. "The Debate on Influencing Doctors’ Decisions: Are Drug Characteristics the Missing Link?," ERIM Report Series Research in Management, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasm ERS-2007-056-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.

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