Bad medicine: Litigation, competition, and the marketing of prescription opioids

Research Abstract How do competitors respond when a firm experiences an increased threat of penalties for questionable business activities? While conventional wisdom suggests that competitors will attempt to avoid similar activities, we draw attention to a countervailing incentive. If an increased threat of penalties induces one firm to reduce its engagement in an activity, competitors in an industry may see an opportunity to profit by increasing their engagement in the activity. We explain how this is theoretically possible even if competitors also experience an increased threat of penalties. As an empirical example, we show that following a lawsuit against Purdue Pharma, Purdue significantly decreased its spending to promote OxyContin, but other prescription opioid firms significantly increased their spending to promote competing opioids to the same physicians. Managerial Abstract Competitive dynamics can make questionable business activities in an industry difficult to stamp out on a case‐by‐case basis. Forcing one firm to decrease its engagement in a questionable activity may result in competitors stepping in to fill the void by increasing their engagement in similar activities. We find that this occurred in the prescription opioid industry. Following a lawsuit against Purdue Pharma, Purdue significantly decreased its spending to promote its controversial OxyContin product. But rather than attempt to distance themselves from association with Purdue, other prescription opioid firms significantly increased their spending to promote competing opioids to physicians previously targeted by Purdue, including in counties where the opioid epidemic was known to be severe.