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Side Effects Of Competition: The Role Of Advertising And Promotion In Pharmaceutical Markets

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Executive Summary

The extent of pharmaceutical advertising and promotion can be characterized by a balancing act between profitable demand expansions and potentially unfavorable subsequent regulatory actions. However, this balance also depends on the nature of competition (e.g. monopoly versus oligopoly). In this paper, the authors model the firm's behavior under different competitive scenarios and test the model's predictions using a novel combination of sales, promotion, advertising, and adverse event reports data. They focus on the market for erectile dysfunction drugs as the basis for estimation. This market is ideal for analysis as it is characterized by an abrupt shift in structure, all drugs are branded, the drugs are associated with adverse health events, and have extensive advertising and promotion.

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