The Roles of Marketing, Product Quality and Price Competition in the Growth and Composition of the U.S. Anti-Ulcer Drug Industry

72 Pages Posted: 18 Jun 2000 Last revised: 4 Apr 2015

See all articles by Ernst R. Berndt

Ernst R. Berndt

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

Linda T. Bui

Brandeis University

David Reiley

Massachusetts Institute of Technology (MIT) - Department of Economics

Glen L. Urban

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

Date Written: October 1994

Abstract

The introduction of Tagamet in the United States in 1977 represented both a revolution in ulcer therapy and the beginning of an important new industry. Today there are four prescription H2- antagonist drugs: Tagamet, Zantac, Pepcid and Axid, and they comprise a multi-billion dollar market for the treatment of ulcers and other gastric acid conditions. In this paper, we examine the determinants of sales in this market, using a carefully constructed data set made possible by IMS America. We concentrate particularly on the marketing of these drugs to physicians through detailing and medical journal advertising, and we make an innovative attempt to distinguish between 'industry-expanding' and 'rivalrous' marketing efforts. We find that the impact of total marketing on the expansion of overall industry sales declines as the number of products on the market increases. In addition, we find that the stock of industry-expanding marketing depreciates at a near-zero rate, while the stock of marketing oriented towards rivalrous market share competition depreciates at a 40% annual rate. We also find that the products' sales are affected significantly by price, quality attributes (such as number of FDA- approved indications and number of adverse drug interactions), and order of entry into the market.

Suggested Citation

Berndt, Ernst R. and Bui, Linda T.M. and Reiley, David and Urban, Glen L., The Roles of Marketing, Product Quality and Price Competition in the Growth and Composition of the U.S. Anti-Ulcer Drug Industry (October 1994). NBER Working Paper No. w4904. Available at SSRN: https://ssrn.com/abstract=226601

Ernst R. Berndt (Contact Author)

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

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National Bureau of Economic Research (NBER)

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Linda T.M. Bui

Brandeis University ( email )

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David Reiley

Massachusetts Institute of Technology (MIT) - Department of Economics

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Glen L. Urban

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

E52-473
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617-258-6617 (Fax)

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