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Related Experiment Videos

Advertising and generic market entry.

Ingrid Königbauer1

  • 1Department of Economics, University of Munich, Ludwigstrasse 28VG, 80539 Munich, Germany. ingrid.koenigbauer@lrz.uni-muenchen.de

Journal of Health Economics
|October 3, 2006
PubMed
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Reference pricing of pharmaceuticals.

Journal of health economics·2006
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Persuasive advertising can enable generic drug entry by differentiating products. However, excessive advertising may paradoxically block entry and decrease overall social welfare.

Area of Science:

  • Pharmaceutical Economics
  • Health Policy
  • Market Competition

Background:

  • Incumbent firms may use advertising to influence physician perceptions.
  • Generic drug entry is often limited by intense price competition (Bertrand competition).
  • Product differentiation is key to enabling generic market entry.

Purpose of the Study:

  • To analyze the impact of persuasive advertising on generic drug market entry.
  • To evaluate the effects of advertising-driven product differentiation on social welfare.
  • To determine conditions under which advertising may deter or facilitate generic entry.

Main Methods:

  • Economic modeling of pharmaceutical markets.
  • Analysis of advertising's influence on perceived drug quality.

Related Experiment Videos

  • Game theory approach to market entry and competition.

    • Main Results:

    • Persuasive advertising can create necessary product differentiation, inducing generic market entry.
    • Over-investment in advertising can deter generic entry under specific circumstances.
    • Advertising-induced differentiation impacts social welfare, with potential reductions compared to accommodated entry.

    Conclusions:

    • Persuasive advertising is a double-edged sword in pharmaceutical markets.
    • Strategic advertising can be used to manage generic competition and influence market outcomes.
    • Policy considerations are needed to balance innovation incentives with social welfare and access to generics.