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Network Effects and Diffusion in Pharmaceutical Markets: Antiulcer Drugs

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  • Ernst R. Berndt
  • Robert S. Pindyck
  • Pierre Azoulay

Abstract

We examine the role of network effects in the demand for pharmaceuticals at both the brand level and for a therapeutic class of drugs. These effects emerge when use of a drug by others conveys information about its efficacy and safety to patients and physicians. This can lead to herd behavior where a particular drug -- not necessarily the most efficacious or safest -- can come to dominate the market despite the availability of close substitutes, and can also affect the rate of market diffusion. Using data for H2-antagonist antiulcer drugs, we examine two aspects of these effects. First, we use hedonic price procedures to estimate how the aggregate usage of a drug affects brand valuation. Second, we estimate discrete-time diffusion models at both the industry and brand levels to measure the impact on rates of diffusion and market saturation.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7024.

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Date of creation: Mar 1999
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Handle: RePEc:nbr:nberwo:7024

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  1. Zvi Griliches, 1998. "Patent Statistics as Economic Indicators: A Survey," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 287-343 National Bureau of Economic Research, Inc.
  2. 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.
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  8. Austan Goolsbee & Peter J. Klenow, 1999. "Evidence on Learning and Network Externalities in the Diffusion of Home Computers," NBER Working Papers 7329, National Bureau of Economic Research, Inc.
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  13. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-79, June.
  14. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  15. repec:fth:harver:1473 is not listed on IDEAS
  16. Stanley M. Besen & Joseph Farrell, 1994. "Choosing How to Compete: Strategies and Tactics in Standardization," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 117-131, Spring.
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  18. Neil Gandal, 1994. "Hedonic Price Indexes for Spreadsheets and an Empirical Test for Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 160-170, Spring.
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Citations

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Cited by:
  1. Gautam Gowrisankaran & Joanna Stavins, 1999. "Network externalities and technology adoption: lessons from electronic payments," Working Papers 99-5, Federal Reserve Bank of Boston.
  2. Matthew Shum, 1998. "Characterizing Informational Barriers To Entry In The Anti-Ulcer Drug Market," Working Papers mshum-98-03, University of Toronto, Department of Economics.
  3. Antonio Cabrales & Sergi Jiménez-Martín, 2007. "The Determinants of Pricing in Pharmaceuticals: Are U.S. prices really higher than those of Canada?," Working Papers 304, Barcelona Graduate School of Economics.
  4. Antonio Cabrales & Sergi Jiménez-Martín, 2008. "The Determinants of Pricing in Pharmaceuticals: Are U.S. prices really so high?," Working Papers 2008-18, FEDEA.
  5. Jonathan Skinner & Douglas Staiger, 2005. "Technology Adoption From Hybrid Corn to Beta Blockers," NBER Working Papers 11251, National Bureau of Economic Research, Inc.
  6. Zhao, Jinhua, 2005. "The Role of Information in Technology Adoption under Poverty," Working Paper Series RP2005/41, World Institute for Development Economic Research (UNU-WIDER).
  7. Austan Goolsbee & Peter J. Klenow, 1999. "Evidence on Learning and Network Externalities in the Diffusion of Home Computers," NBER Working Papers 7329, National Bureau of Economic Research, Inc.
  8. Javier Coronado & Sergi Jiménez-Martín & Pedro Marín, 2014. "An empirical analysis of the multimarket contact theory in pharmaceutical markets," The European Journal of Health Economics, Springer, vol. 15(6), pages 623-643, July.
  9. Moretto, Michele, 2000. "Irreversible investment with uncertainty and strategic behavior," Economic Modelling, Elsevier, vol. 17(4), pages 589-617, December.
  10. K. Andersson & � Foros & F. Steen, 2009. "Text and voice: complements, substitutes or both?," Industrial and Corporate Change, Oxford University Press, vol. 18(6), pages 1231-1247, December.
  11. Desiraju, Ramarao & Nair, Harikesh S. & Chintagunta, Pradeep, 2004. "Diffusion of New Pharmaceutical Drugs in Developing and Developed Nations," Research Papers 1950, Stanford University, Graduate School of Business.

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