Abstract

http://ssrn.com/abstract=1711089
 
 

References (30)



 


 



Competition in the Pharmaceutical Industry: How Do Quality Differences Shape Advertising Strategies?


Maria Angeles De Frutos


Universidad Carlos III de Madrid - Department of Economics

Carmine Ornaghi


University of Southampton - Division of Economics

Georges Siotis


Universidad Carlos III de Madrid - Department of Economics

October 2010

CEPR Discussion Paper No. DP8076

Abstract:     
We present a Hotelling model of price and advertising competition between prescription drugs that differ in quality/side effects. Advertising results in the endogenous formation of two consumer groups: brand loyal and non-brand loyal ones. We show that advertising strategies are strategic substitutes, with the better quality drugs being the ones that are most advertised. This positive association stems from the higher rents that firms can extract from consumers whose brand loyalty is endogenously determined by promotional effort. The model's principal hypotheses on advertising and pricing strategies are taken to the data. The latter consists of product level data on price and quantities, product level advertising data as well as the qualitative information on drug quality contained in the Orange Book compiled by the Food and Drug Administration (FDA). The empirical results provide strong support to the model's predictions.

Number of Pages in PDF File: 39

Keywords: advertising, market segmentation, pharmaceutical industry, Product differentiation

JEL Classification: I11, L11, L13, L65, M37

working papers series


Date posted: November 22, 2010  

Suggested Citation

de Frutos, Maria Angeles and Ornaghi, Carmine and Siotis, Georges, Competition in the Pharmaceutical Industry: How Do Quality Differences Shape Advertising Strategies? (October 2010). CEPR Discussion Paper No. DP8076. Available at SSRN: http://ssrn.com/abstract=1711089

Contact Information

Maria Angeles De Frutos (Contact Author)
Universidad Carlos III de Madrid - Department of Economics ( email )
Calle Madrid 126
Getafe, 28903
Spain
Carmine Ornaghi
University of Southampton - Division of Economics ( email )
Southampton, SO17 1BJ
United Kingdom
Georges Siotis
Universidad Carlos III de Madrid - Department of Economics ( email )
Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 9312 (Phone)
+34 91 624 9875 (Fax)
Feedback to SSRN


Paper statistics
Abstract Views: 286
Downloads: 2
References:  30

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.500 seconds