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Advertising in Specialized Markets: Example from the US Pharmaceutical Industry

Amrita Bhattacharyya ()
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Amrita Bhattacharyya: Boston College, Postal: Dept. of Economics, Boston College, Chestnut Hill, MA 02467 USA

No 610, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: This paper studies the usefulness of advertising to both consumers and experts in specialized markets like the prescription drugs, travel and real-estate markets where the consumers' purchasing decisions are influenced by the experts (e.g., doctors, travel agents and real-estate agents). Inspired by the features of the prescription drugs market the study shows that direct-to-consumer-advertising (DTCA) does not substitute for advertising directed to physicians even when physician-advertising is only persuasive in nature. Furthermore, the paper analyzes possible advertising equilibriums in a two-firm setting and finds that it is possible to have a sub-game perfect, non-symmetric Nash Equilibrium in which only one firm advertises to the consumers and the other firm becomes a free-rider when, (i) the number of patients who are aware of treatment is very low, and (ii) there are very few patients who insist on a particular drug. Otherwise, for familiar diseases a non-advertising equilibrium is most likely. Finally, consumer advertising can have welfare improving implications depending on the disease types and patient characteristics.

Keywords: advertising; DTCA; prescription; expert; Nash equilibrium (search for similar items in EconPapers)
JEL-codes: L0 M3 I0 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2005-02-28, Revised 2005-11-10
New Economics Papers: this item is included in nep-bec, nep-com, nep-hea and nep-ind
Note: previously circulated as "Advertising in Specialized Markets: Example from the US Pharmaceutical Industry"
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