Network Effects and Diffusion in Pharmaceutical Markets: Antiulcer Drugs

Ernst R. Berndt, Robert Pindyck and Pierre Azoulay

No 7024, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the role of network effects in the demand for pharmaceuticals at both the brand level and for a therapeutic class of drugs. These effects emerge when use of a drug by others conveys information about its efficacy and safety to patients and physicians. This can lead to herd behavior where a particular drug -- not necessarily the most efficacious or safest -- can come to dominate the market despite the availability of close substitutes, and can also affect the rate of market diffusion. Using data for H2-antagonist antiulcer drugs, we examine two aspects of these effects. First, we use hedonic price procedures to estimate how the aggregate usage of a drug affects brand valuation. Second, we estimate discrete-time diffusion models at both the industry and brand levels to measure the impact on rates of diffusion and market saturation.

JEL-codes: D12 L65 (search for similar items in EconPapers)
Date: 1999-03
New Economics Papers: this item is included in nep-hea, nep-net and nep-tid
Note: EH PR
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Citations: View citations in EconPapers (15)

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Related works:
Working Paper: Network effects and diffusion in pharmaceutical markets: antiulcer drugs (1998)
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