Network Effects and Diffusion in Pharmaceutical Markets: Antiulcer Drugs

33 Pages Posted: 7 Jul 1999  

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

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

Date Written: March 1999

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.

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

Ernst R. Berndt (Contact Author)

National Bureau of Economic Research (NBER)

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Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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Robert S. Pindyck

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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Cambridge, MA 02139
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617-258-6855 (Fax)

HOME PAGE: http://web.mit.edu/rpindyck/www/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Pierre Azoulay

Massachusetts Institute of Technology (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)

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Cambridge, MA 02138
United States

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