Advertising and competition in the ethical pharmaceutical industry: The case of antihypertensive drugs

This paper uses data on the majority of name-brand antihypertensive drugs m arketed in the United States during 1988-93 to test the hypothesis that adv ertising decreases the price elasticity of demand in the pharmaceutical ind ustry. This is the first study to directly estimate the effects of drug pro duct promotion on the price elasticity of demand in this industry. We find strong evidence of an advertising effect. In particular, detailing efforts (the salient means for product promotion in this industry) systematically l ower price sensitivity. Given the inverse relationship between elasticity o f demand and price, it is likely that consumers pay higher prices as a resu lt of the advertising that occurs in this industry. Our findings are thus c onsistent with Hurwitz and Caves, who find evidence that advertising inhibi ts entry into this market but in contrast to earlier research that found no anticompetitive effect.