33 Pages Posted: 7 Jul 1999 Last revised: 23 Jun 2012
Date Written: March 1999
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.
Suggested Citation: Suggested Citation
Berndt, Ernst R. and Pindyck, Robert S. and Azoulay, Pierre, Network Effects and Diffusion in Pharmaceutical Markets: Antiulcer Drugs (March 1999). NBER Working Paper No. w7024. Available at SSRN: https://ssrn.com/abstract=155851