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

In: The Economics of New Goods

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  • Ernst R. Berndt
  • Linda T. Bui
  • David H. Lucking-Reiley
  • Glen L. 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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Suggested Citation

  • Ernst R. Berndt & Linda T. Bui & David H. Lucking-Reiley & Glen L. Urban, 1996. "The Roles of Marketing, Product Quality, and Price Competition in the Growth and Composition of the U.S. Antiulcer Drug Industry," NBER Chapters, in: The Economics of New Goods, pages 277-328, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:6070
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    Cited by:

    1. M Gray & E Parker, 1998. "Industrial Change and Regional Development: The Case of the US Biotechnology and Pharmaceutical Industries," Environment and Planning A, , vol. 30(10), pages 1757-1774, October.
    2. Abbott, Thomas III, 1995. "Price regulation in the pharmaceutical industry: Prescription or placebo?," Journal of Health Economics, Elsevier, vol. 14(5), pages 551-565, December.
    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. Andrew Ching, 2000. "Dynamic Equilibrium in the US Prescription Drug Market After Patent Expiration," Econometric Society World Congress 2000 Contributed Papers 1242, Econometric Society.
    5. Lee, Chung-Ying, 2020. "Pricing strategy and moral hazard: Copay coupons in pharmaceuticals," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    6. Lopez, Luis E. & Roberts, Edward B., 2002. "First-mover advantages in regimes of weak appropriability: the case of financial services innovations," Journal of Business Research, Elsevier, vol. 55(12), pages 997-1005, December.
    7. Ching, Andrew T., 2010. "Consumer learning and heterogeneity: Dynamics of demand for prescription drugs after patent expiration," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 619-638, November.
    8. Sara Fisher Ellison & Catherine Wolfram, 2001. "Pharmaceutical Prices and Political Activity," NBER Working Papers 8482, National Bureau of Economic Research, Inc.
    9. Berndt, Ernst R. & Pindyck, Robert S. & Azoulay, Pierre, 1970-, 1998. "Network effects and diffusion in pharmaceutical markets : antiulcer drugs," Working papers WP 4059-98., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    10. Riemer, Hila & Mallik, Suman & Sudharshan, Devanathan, 2002. "Market Shares Follow the Zipf Distribution," Working Papers 02-0125, University of Illinois at Urbana-Champaign, College of Business.
    11. Winther, K. Tobias, 2008. "Analyzing new profit opportunities: a guide to making business projects financially successful," MPRA Paper 11346, University Library of Munich, Germany.
    12. Ching, Andrew & Ishihara, Masakazu, 2007. "The Effects of Detailing on Prescribing Decisions under Two-Sided Learning," MPRA Paper 4935, University Library of Munich, Germany.
    13. Jonathan Skinner & Douglas Staiger, 2007. "Technology Adoption from Hybrid Corn to Beta-Blockers," NBER Chapters, in: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches, pages 545-570, National Bureau of Economic Research, Inc.
    14. Yaroslav Kryukov, "undated". "Dynamic R&D and the Effectiveness of Policy Intervention in the Pharmaceutical Industry," GSIA Working Papers 2015-E33, Carnegie Mellon University, Tepper School of Business.
    15. Pierre Dubois & Rachel Griffith & Martin O’Connell, 2018. "The Effects of Banning Advertising in Junk Food Markets," Review of Economic Studies, Oxford University Press, vol. 85(1), pages 396-436.
    16. Amitabh Chandra & David Malenka & Jonathan Skinner, 2014. "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.
    17. Denis Klimanov & Ekaterina Frolkina, 2015. "The Impact of CRM System Use on Companies’ Customer Understanding: The Case of the Russian Ophthalmology Market," Tržište/Market, Faculty of Economics and Business, University of Zagreb, vol. 27(1), pages 75-92.
    18. Andrew T. Ching & Hyunwoo Lim, 2020. "A Structural Model of Correlated Learning and Late-Mover Advantages: The Case of Statins," Management Science, INFORMS, vol. 66(3), pages 1095-1123, March.
    19. Chen Miao-Sheng & Shih Yu-Ti, 2008. "Pricing of prescription drugs and its impact on physicians’ choice behavior," Health Care Management Science, Springer, vol. 11(3), pages 288-295, September.
    20. Venkataraman, S. & Stremersch, S., 2007. "The Debate on Influencing Doctors’ Decisions: Are Drug Characteristics the Missing Link?," ERIM Report Series Research in Management 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.
    21. Marco Ottaviani, "undated". "Monopoly Pricing with Social Learning," ELSE working papers 035, ESRC Centre on Economics Learning and Social Evolution.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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