Although there is much controversy in the economic literature about how advertising affects market competition, little is known about the effect of advertising on product innovation. We examined the relationship between advertising expenditures and the research and development activities of pharmaceutical firms using empirical data from eight therapy areas. This study finds that detailing advertising may have a significant positive effect on the number of new products entering into clinical development. Markets of chronic disease with high levels of detailing advertising were more attractive to pharmaceutical firms. However, the effect of advertising on new product novelty remains inconclusive.
Review of Industrial Organization – Springer Journals
Published: Oct 11, 2007
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