NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Market Effects of Adverse Regulatory Events: Evidence from Drug Relabeling

Matthew J. Higgins, Xin Yan, Chirantan Chatterjee

NBER Working Paper No. 24957
Issued in August 2018
NBER Program(s):Health Economics, Industrial Organization, Productivity, Innovation, and Entrepreneurship

The FDA maintains post-approval safety surveillance programs to monitor the safety of drugs. As adverse events are reported, the FDA may choose to intervene and change the safety labeling associated with a drug. We provide causal evidence of the impact that these regulatory interventions have on aggregate demand for pharmaceuticals. We find that aggregate demand declines by 16.9 percent within two years of a relabeling event. After accounting for substitution patterns by physicians along with competitor actions, aggregate demand declines by 5.1 percent. Critically, this decline represents consumers that leave the market. The overall effect appears to be driven by ‘high-intensity’ markets or those with significant relabeling activity. Results control for the level of advertising and are robust to variation across types of relabeling, market sizes, levels of competition and degrees of cross-molecular substitution.

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Document Object Identifier (DOI): 10.3386/w24957

 
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