Characterizing Informational Barriers To Entry In The Anti-Ulcer Drug Market
AbstractWe empirically quantify and characterize informational barriers to entry into the anti-ulcer drug market by studying the diffusion process of the molecule Omeprazole in the first 30 months after it entered the market. Using a novel panel dataset tracking doctors' complete prescription histories, we specify and estimate a learning model in which doctors, initially uncertain about the quality differential between Omeprazole and the incumbent molecules, update their beliefs about this differential from first-hand experience after observing noisy signals from patients to whom they have prescribed the molecule. We find strong evidence that doctors' uncertainty about Omeprazole's quality is resolved by first-hand experience rather than through the pharmaceutical companies' marketing activities, so that learning through first-hand experience explains almost all of Omeprazole's diffusion path over our three-year sample period. This casts some doubt on previous researchers' findings, utilizing aggregate data, regarding the importance of marketing in securing market share for an entrant brand.
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Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number mshum-98-03.
Length: 35 pages
Date of creation: 09 Oct 1998
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pharmaceutical industry; barriers to entry; simulated maximum likelihood; diffusion models;
Find related papers by JEL classification:
- I10 - Health, Education, and Welfare - - Health - - - General
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology
- M3 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising
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