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Network effects and diffusion in pharmaceutical markets : antiulcer drugs

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  • Berndt, Ernst R.
  • Pindyck, Robert S.
  • Azoulay, Pierre, 1970-

Abstract

We examine the role of network effects in the demand for pharmaceuticals at both the brand level and for a therapeutic class of drugs. These effects emerge when use of a drug by others conveys information about its efficacy and safety to patients and physicians. This can lead to herd behavior where a particular drug -- not necessarily the most efficacious or safest -- can come to dominate the market despite the availability of close substitutes, and can also affect the rate of market diffusion. Using data for H2-antagonist antiulcer drugs, we examine two aspects of these effects. First, we use hedonic price procedures to estimate how the aggregate usage of a drug affects brand valuation. Second, we estimate discrete-time diffusion models at both the industry and brand levels to measure the impact on rates of diffusion and market saturation.
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Suggested Citation

  • 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.
    • Handle: RePEc:mit:sloanp:2744
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    2. Katharina E Blankart & Sotiris Vandoros, 2024. "Explaining why increases in generic use outpace decreases in brand name medicine use in multisource markets and the role of regulation," PLOS ONE, Public Library of Science, vol. 19(5), pages 1-23, May.
    3. Goolsbee, Austan & Klenow, Peter J, 2002. "Evidence on Learning and Network Externalities in the Diffusion of Home Computers," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 317-343, October.
    4. Javier Coronado & Sergi Jiménez-Martín & Pedro Marín, 2014. "An empirical analysis of the multimarket contact theory in pharmaceutical markets," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(6), pages 623-643, July.
    5. Fang, Di & Richards, Timothy, 2016. "New Maize Variety Adoption in Mozambique: A Spatial Approach," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235388, Agricultural and Applied Economics Association.
    6. Joan-Ramon Borrell, 2007. "Pricing and patents of HIV/AIDS drugs in developing countries," Applied Economics, Taylor & Francis Journals, vol. 39(4), pages 505-518.
    7. Antonio Cabrales & Sergi Jiménez-Martín, 2007. "The determinants of pricing in pharmaceuticals: Are U.S. prices really higher than those of Canada?," Economics Working Papers 1032, Department of Economics and Business, Universitat Pompeu Fabra.
    8. Jinhua Zhao, 2005. "The Role of Information in Technology Adoption under Poverty," WIDER Working Paper Series RP2005-41, World Institute for Development Economic Research (UNU-WIDER).
    9. K. Andersson & Ø Foros & F. Steen, 2009. "Text and voice: complements, substitutes or both?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 18(6), pages 1231-1247, December.
    10. 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.
    11. Matthew Shum, 1998. "Characterizing Informational Barriers To Entry In The Anti-Ulcer Drug Market," Working Papers mshum-98-03, University of Toronto, Department of Economics.
    12. Desiraju, Ramarao & Nair, Harikesh S. & Chintagunta, Pradeep, 2004. "Diffusion of New Pharmaceutical Drugs in Developing and Developed Nations," Research Papers 1950, Stanford University, Graduate School of Business.
    13. Joan-Ramon Borrell & Jayashree Watal, 2002. "Impact of Patents on Access to HIV/AIDS Drugs in Developing Countries," CID Working Papers 92, Center for International Development at Harvard University.
    14. Gautam Gowrisankaran & Joanna Stavins, 2004. "Network Externalities and Technology Adoption: Lessons from Electronic Payments," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 260-276, Summer.
    15. Jonathan Skinner & Douglas Staiger, 2005. "Technology adoption from hybrid corn to beta blockers," Proceedings, Federal Reserve Bank of San Francisco.
    16. Moretto, Michele, 2000. "Irreversible investment with uncertainty and strategic behavior," Economic Modelling, Elsevier, vol. 17(4), pages 589-617, December.

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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