IDEAS home Printed from
   My bibliography  Save this paper

Competition and Advertising in Specialized Markets: A Study of the U.S. Pharmaceutical Industry


  • Amrita Bhattacharyya

    () (Boston College)


This paper analyzes advertising incentives and strategies in specialized markets, where consumers' decisions are dictated by experts. By analyzing the market stealing and market expanding aspects of advertising, this study shows that in a sub-game perfect equilibrium only some (and not all) firms may choose to advertise to consumers. From the welfare perspective, consumer advertising is socially optimal when advertising has only market expanding effects. Furthermore, a simple game-theoretic model shows that when only some firms advertise to consumers, the crucial determinant of advertising is the number of advertisers. In particular, with increased competition from rival advertisers, each firm's advertising decreases. Modeling specific features of the U.S. prescription drugs market the theoretical analysis suggests that the wide variation in direct-to-consumer-advertising (DTCA) by U.S. pharmaceutical companies both within and across drug classes is due to differences in disease-familiarity and heterogeneity in patients' types. Using annual, brand-level DTCA expenditure data for prescription drugs, empirical results give evidence of the negative impact of competition on advertising.

Suggested Citation

  • Amrita Bhattacharyya, 2005. "Competition and Advertising in Specialized Markets: A Study of the U.S. Pharmaceutical Industry," Boston College Working Papers in Economics 624, Boston College Department of Economics, revised 10 Nov 2005.
  • Handle: RePEc:boc:bocoec:624
    Note: previously circulated as "Why Count Advertising Rivals? Competition and Consumer Advertising in Specialized Markets"

    Download full text from publisher

    File URL:
    File Function: main text
    Download Restriction: no

    References listed on IDEAS

    1. Cabral, Luis M. B., 2000. "Introduction to Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032864, January.
    2. Gary S. Becker & Kevin M. Murphy, 1993. "A Simple Theory of Advertising as a Good or Bad," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 941-964.
    3. Amrita Bhattacharyya, 2005. "Advertising in Specialized Markets: Example from the US Pharmaceutical Industry," Boston College Working Papers in Economics 610, Boston College Department of Economics, revised 10 Nov 2005.
    4. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Advertising; Competition; Pharmaceutical; Expert; Nash equilibrium;

    JEL classification:

    • L0 - Industrial Organization - - General
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising
    • I0 - Health, Education, and Welfare - - General

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boc:bocoec:624. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.