NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Consumption Externalities and Diffusion in Pharmaceutical Markets: Antiulcer Drugs

Ernst R. Berndt, Robert S. Pindyck, Pierre Azoulay

NBER Working Paper No. 7772
Issued in June 2000
NBER Program(s):   HC   PR

We examine the role of consumption externalities in the demand for pharmaceuticals at both the brand level and over a therapeutic class of drugs. These effects emerge when use of a drug by others affects its value, and/or conveys information abut efficacy and safety to patients and physicians. This can affect that rate of market diffusion for a new entrant, and can lead to herb behavior whereby a particular drug can dominate the market despite the availability of close substitutes. We use data for H2-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, but that they operate at the brand and not the therapeutic class level.

download in pdf format
   (3130 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (3130 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w7772

Published: Ernst R. Berndt & Robert S. Pindyck & Pierre Azoulay, 2003. "Consumption Externalities and Diffusion in Pharmaceutical Markets: Antiulcer Drugs," Journal of Industrial Economics, Blackwell Publishing, vol. 51(2), pages 243-270, 06.

Users who downloaded this paper also downloaded these:
Berndt, Pindyck, and Azoulay w7024 Network Effects and Diffusion in Pharmaceutical Markets: Antiulcer Drugs
Goolsbee and Klenow w7329 Evidence on Learning and Network Externalities in the Diffusion of Home Computers
Meissner w9233 A New World Order: Explaining the Emergence of the Classical Gold Standard
Berndt, Bui, Lucking-Reiley, and Urban The Roles of Marketing, Product Quality, and Price Competition in the Growth and Composition of the U.S. Antiulcer Drug Industry
Rosenthal, Berndt, Donohue, Epstein, and Frank Demand Effects of Recent Changes in Prescription Drug Promotion
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us