Biomedical Engineering Reference
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after generic entry and explain that this may refl ect fi rms taking payoffs from their
prior investments in advertising. However, price elasticity of demand increases after
generic entry (Bhattacharjya and Vogt
2003
).
We conclude that the literature provides mixed results regarding the price elastic-
ity of pharmaceutical demand. Future research that sheds more light on this issue is
highly relevant, given that many governments are focusing on reducing national
health care budgets, which generates pressure on the pharmaceutical industry to
reduce their prices (see also Sect.
20.5
).
20.3
Pharmaceutical Promotion and Macro-Level
Diffusion Models
Pharmaceutical companies depend on continuous innovation and the successful
commercialization of new drugs not only represents a key performance metric but
is also the main means of recovering the huge investment in R&D. Diffusion models
are useful tools for analyzing and predicting the market penetration of new drugs
and provide insights into the effects of pharmaceutical marketing resource alloca-
tion which help managers to optimize their decisions. In this section we review
macro-level diffusion models in pharmaceutical marketing. These models describe
the market-level sales of a new product and focus on understanding the develop-
ment of the focal new product's position in the market and its response to manage-
rial and environmental variables (Roberts and Lattin
2000
). Given our focus on
macro-models, we consider neither individual level diffusion models (see, e.g.,
Chatterjee and Eliashberg
1990
) nor models within the proportional-hazard frame-
work (see, e.g., Helsen and Schmittlein
1993
; Jain
1992
; Jain and Vilcassim
1991
;
Van den Bulte and Iyengar
2011
).
We address two questions: which pharmaceutical marketing instruments are
found to affect the diffusion of pharmaceutical innovations and how should they be
included in diffusion models?
20.3.1
The Bass Framework
Diffusion models are developed for capturing the typical sales pattern that is associ-
ated with the diffusion process of new products. The development of diffusion
models is based on the framework developed by Bass (
1969
). In its basic form, the
Bass model has two parameters, the coeffi cient of innovation and the coeffi cient of
imitation. The coeffi cient of innovation, also known as the coeffi cient of
external
infl uence
, indicates what portion of the non-adopters will try the product due to their
propensity to innovate. The coeffi cient of imitation, also known as the coeffi cient of
internal infl uence
, is related to the infl uence that current adopters exert on future
trialists of the innovation. The Bass model was initially developed for durables
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