CHARACTERIZING INFORMATIONAL BARRIERS TO ENTRY IN THE ANTI-ULCER DRUG MARKET

Matthew Shum ()

Working Papers from University of Toronto, Department of Economics

Abstract: We empirically quantify and characterize informational barriers to entry into the anti-ulcer drug market by studying the diffusion process of the molecule Omeprazole in the first 30 months after it entered the market. Using a novel panel dataset tracking doctors' complete prescription histories, we specify and estimate a learning model in which doctors, initially uncertain about the quality differential between Omeprazole and the incumbent molecules, update their beliefs about this differential from first-hand experience after observing noisy signals from patients to whom they have prescribed the molecule. We find strong evidence that doctors' uncertainty about Omeprazole's quality is resolved by first-hand experience rather than through the pharmaceutical companies' marketing activities, so that learning through first-hand experience explains almost all of Omeprazole's diffusion path over our three-year sample period. This casts some doubt on previous researchers' findings, utilizing aggregate data, regarding the importance of marketing in securing market share for an entrant brand.

Keywords: pharmaceutical industry; barriers to entry; simulated maximum likelihood; diffusion models (search for similar items in EconPapers)
JEL-codes: I10 L15 L65 M3 (search for similar items in EconPapers)
Pages: 35 pages
Date: 1998-10-09
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:mshum-98-03

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