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Advertising and Competition in the Ethical Pharmaceutical Industry: The Case of Antihypertensive Drugs

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  • Rizzo, John A

Abstract

This paper uses data on the majority of name-brand antihypertensive drugs marketed in the United States during 1988-93 to test the hypothesis that advertising decreases the price elasticity of demand in the pharmaceutical industry. This is the first study to directly estimate the effects of drug product promotion on the price elasticity of demand in this industry. We find strong evidence of an advertising effect. In particular, detailing efforts (the salient means for product promotion in this industry) systematically lower price sensitivity. Given the inverse relationship between elasticity of demand and price, it is likely that consumers pay higher prices as a result of the advertising that occurs in this industry. Our findings are thus consistent with Hurwitz and Caves, who find evidence that advertising inhibits entry into this market but in contrast to earlier research that found no anticompetitive effect. Copyright 1999 by the University of Chicago.

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  • 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, vol. 42(1), pages 89-116, April.
  • Handle: RePEc:ucp:jlawec:v:42:y:1999:i:1:p:89-116
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    File URL: http://dx.doi.org/10.1086/467419
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    1. Leffler, Keith B, 1981. "Persuasion or Information? The Economics of Prescription Drug Advertising," Journal of Law and Economics, University of Chicago Press, vol. 24(1), pages 45-74, April.
    2. Vernon, John M, 1971. "Concentration, Promotion, and Market Share Stability in the Pharmaceutical Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 19(3), pages 246-266, July.
    3. Hurwitz, Mark A & Caves, Richard E, 1988. "Persuasion or Information? Promotion and the Shares of Brand Name and Generic Pharmaceuticals," Journal of Law and Economics, University of Chicago Press, vol. 31(2), pages 299-320, October.
    4. Comanor, William S, 1986. "The Political Economy of the Pharmaceutical Industry," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1178-1217, September.
    5. Telser, Lester G, et al, 1975. "The Theory of Supply with Applications to the Ethical Pharmaceutical Industry," Journal of Law and Economics, University of Chicago Press, vol. 18(2), pages 449-478, October.
    6. Rizzo, John A & Zeckhauser, Richard J, 1990. "Advertising and Entry: The Case of Physician Services," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 476-500, June.
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