Diffusion of New Pharmaceutical Drugs in Developing and Developed Nations

Abstract

In the context of introducing new products around the world, it is important to understand the relative attractiveness of various countries in terms of maximum penetration potential and diffusion speed. In this paper, we examine these market characteristics for a new category of prescription drugs in both developing and developed countries. Using data from fifteen countries, and a logistic specification in the Hierarchical Bayesian framework, we report the differences in diffusion speed and maximum penetration potential between developing and developed nations. Our methodology accounts for the limited number of data observations as well as serial correlation and endogeneity problems that arise in the analysis. The principal findings include: (i) Compared to developed countries, developing nations tend to have lower diffusion speeds and maximum penetration levels; (ii) Laggard developed countries have higher speeds. However, laggard developing countries do not have higher diffusion speeds; (iii) Per capita expenditures on healthcare have a positive effect on diffusion speed (particularly for developed countries), while higher prices tend to decrease diffusion speed. The paper concludes by identifying useful avenues for additional research.

Keywords: diffusion, cross-country analysis, pharmaceuticals, Hierarchical Bayes, econometrics, economic policy, empirical industrial organization, market research, marketing strategy, product management

JEL Classification: C10, L10, M3, O32