Abstract

http://ssrn.com/abstract=418946
 
 

References (26)



 
 

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Consumption Externalities and Diffusion in Pharmaceutical Markets: Antiulcer Drugs


Ernst R. Berndt


Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Robert S. Pindyck


Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Pierre Azoulay


MIT Sloan School of Management; National Bureau of Economic Research (NBER)


Journal of Industrial Economics, Vol. 51, pp. 243-270, June 2003

Abstract:     
We examine the role of consumption externalities in the demand for pharmaceuticals at both the brand level and over a therapeutic class of drugs. Externalities emerge when use of a drug by others affects its value, and/or conveys information about efficacy and safety to patients and physicians. This can affect the rate of market diffusion for a new entrant, and can lead to dominance of one drug despite the availability of close substitutes. We use data for H-antagonist antiulcer drugs to estimate a dynamic demand model and quantify these effects. The model has three components: an hedonic price equation that measures how the aggregate usage of a drug, as well as conventional attributes, affect brand valuation; equations relating equilibrium market shares to quality-adjusted prices and marketing levels; and diffusion equations describing the dynamic adjustment process. We find that consumption externalities influence both valuations and rates of diffusion, and that they operate at the brand and not the therapeutic class level.

Number of Pages in PDF File: 28

Accepted Paper Series


Date posted: September 28, 2003  

Suggested Citation

Berndt, Ernst R. and Pindyck, Robert S. and Azoulay, Pierre, Consumption Externalities and Diffusion in Pharmaceutical Markets: Antiulcer Drugs. Journal of Industrial Economics, Vol. 51, pp. 243-270, June 2003. Available at SSRN: http://ssrn.com/abstract=418946

Contact Information

Ernst R. Berndt (Contact Author)
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
Room E52-452
Cambridge, MA 02142
United States
617-253-2665 (Phone)
617-258-6055 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Robert S. Pindyck
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
50 Memorial Drive, E52-450
Cambridge, MA 02142
United States
617-253-6641 (Phone)
617-258-6855 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Pierre Azoulay
MIT Sloan School of Management ( email )
50 Memorial Drive
Cambridge, MA 02139-4307
United States
HOME PAGE: http://scripts.mit.edu/~pazoulay/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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