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The Effects of Pharmaceutical Marketing and Promotion on Adverse Drug Events and Regulation

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  • Guy David
  • Sara Markowitz
  • Seth Richards

Abstract

This paper analyzes the relationship between postmarketing promotional activity and reporting of adverse drug events by modeling the interaction between a welfare maximizing regulator (the FDA) and a profit maximizing firm. In our analysis demand is sensitive to both promotion and regulatory interventions. Promotion-driven market expansions enhance profitability yet may involve the risk that the drug would be prescribed inappropriately, leading to adverse regulatory actions against the firm. The model exposes the effects of the current regulatory system on consumer and producer welfare. Particularly, the emphasis on safety over benefits distorts the market allocation of drugs away from some of the most appropriate users. We then empirically test the relationship between drug promotion and reporting of adverse reactions using an innovative combination of commercial data on pharmaceutical promotion and FDA data on regulatory interventions and adverse drug reactions. We provide some evidence that increased levels of promotion and advertising lead to increased reporting of adverse medical events for certain conditions.

Suggested Citation

  • Guy David & Sara Markowitz & Seth Richards, 2009. "The Effects of Pharmaceutical Marketing and Promotion on Adverse Drug Events and Regulation," NBER Working Papers 14634, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:14634
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Dhaval M. Dave, 2013. "Effects of Pharmaceutical Promotion: A Review and Assessment," NBER Working Papers 18830, National Bureau of Economic Research, Inc.
    2. Lesley Chiou & Catherine E. Tucker, 2022. "How Do Restrictions on Advertising Affect Consumer Search?," Management Science, INFORMS, vol. 68(2), pages 866-882, February.
    3. Ajay Bhaskarabhatla & Priyatam Anurag & Chirantan Chatterjee & Enrico Pennings, 2021. "How Does Regulation Impact Strategic Repositioning by Firms Across Submarkets? Evidence from the Indian Pharmaceutical Industry," Strategy Science, INFORMS, vol. 6(3), pages 209-227, September.
    4. Guy David & Sara Markowitz, 2011. "Side Effects of Competition: the Role of Advertising and Promotion in Pharmaceutical Markets," NBER Working Papers 17162, National Bureau of Economic Research, Inc.
    5. Leila Agha & Dan Zeltzer, 2022. "Drug Diffusion through Peer Networks: The Influence of Industry Payments," American Economic Journal: Economic Policy, American Economic Association, vol. 14(2), pages 1-33, May.
    6. Chesnes, Matthew & Jin, Ginger Zhe, 2019. "Direct-to-consumer advertising and online search," Information Economics and Policy, Elsevier, vol. 46(C), pages 1-22.
    7. Claudio Deiana & Ludovica Giua & Roberto Nisticò, 2019. "The Economics Behind the Epidemic: Afghan Opium Price and Prescription Opioids in the US," CSEF Working Papers 525, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 13 May 2019.
    8. Mary Olson, 2013. "Eliminating the U.S. drug lag: Implications for drug safety," Journal of Risk and Uncertainty, Springer, vol. 47(1), pages 1-30, August.
    9. Anusua Datta & Dhaval Dave, 2017. "Effects of Physician‐directed Pharmaceutical Promotion on Prescription Behaviors: Longitudinal Evidence," Health Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 450-468, April.
    10. Paul E. Soto, 2021. "Breaking the Word Bank: Measurement and Effects of Bank Level Uncertainty," Journal of Financial Services Research, Springer;Western Finance Association, vol. 59(1), pages 1-45, April.
    11. Deiana, C. & Giua, L. & Nisticò, R., 2020. "Opium Price Shocks and Prescription Opioids in the US," Health, Econometrics and Data Group (HEDG) Working Papers 20/23, HEDG, c/o Department of Economics, University of York.
    12. Matthew Chesnes & Ginger Zhe Jin, 2016. "Direct-to-Consumer Advertising and Online Search," NBER Working Papers 22582, National Bureau of Economic Research, Inc.
    13. Kenkel Don S. & Wang Hua, 2013. "The Economics of Personalization in Prevention and Public Health," Forum for Health Economics & Policy, De Gruyter, vol. 16(2), pages 87-105, June.
    14. Adhikari, Binay K. & Agrawal, Anup & Malm, James, 2019. "Do women managers keep firms out of trouble? Evidence from corporate litigation and policies," Journal of Accounting and Economics, Elsevier, vol. 67(1), pages 202-225.

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    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • K0 - Law and Economics - - General
    • K2 - Law and Economics - - Regulation and Business Law

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