Biomedical Engineering Reference
In-Depth Information
approach a physician, who prescribes an Eli Lilly product which he deems more
appropriate for her condition. In other words, Pfizer's marketing effort has indi-
rectly and (in all likelihood) unintentionally, raised Lilly's sales.
A similar sentiment is echoed in De Bondt's ( 1996 ) presidential address at a
meeting of the European Association for Research in Industrial Economics:
“Spillovers refer to the side effect of strategy. Many business strategies have to
account for spillovers on the demand and production sides. Potential sources of
confusion (regarding what a spillover is) include R&D that improves competitive-
ness of one firm and may simultaneously reduce the profits of a rival, even though
the latter receives some useful information that may allow it to reduce cost or
improve quality …”
Next, a search of the literature reveals that a concrete definition of an externality
is relatively hard to come by; e.g., Mas-Colell et al. ( 1995 , p. 351) note that “a fully
satisfying definition of an externality has proved somewhat elusive” and offer the
following definition: An externality is present whenever the well - being of a
consumer or the production possibilities of a firm are directly affected by the actions
of another agent in the economy . The principal concern expressed by Mas-Colell
et al. ( 1995 ) in coming up with a definition is that the word “directly” should be
interpreted to exclude any effects that may be mediated by prices.
Keeping in mind these perspectives, we will employ the following definition for
a spillover throughout the chapter:
When a marketer's action—which is targeted at a particular audience and undertaken in the
pursuit of a specific set of goals—affects either an unintended audience or the targeted audi-
ence in an unintended manner, we say that a spillover has occurred.
It is worth noting from Mas-Colell et al. ( 1995 ) that the definition of an externality 1
is broader than that of a spillover, in the sense that all spillovers are externalities, but
all externalities need not be spillovers. Essentially, in our context, an externality
accommodates both the unintended and intended impact of actions; for instance, a
physician may decide which medicine should be used to treat a given patient's
ailment—such decision making on behalf of the patient is viewed as an externality
(on the patient) but is not a spillover since there is nothing unintentional about it.
Finally, one principal reason why we distinguish between the two is that the word
spillover conveys the intended meaning with apparent clarity.
Academics have long agreed, at least at a conceptual level, that these types of
externalities can arise in practice (see e.g., the discussion in Gruenspecht and Lave
1989 ); empirical explorations of such phenomenon, however, are not as extensive as
one may expect. To better understand the nature of the spillover effects, we identify
why and in what settings the spillover may arise along with the nature of the conse-
quences. Before proceeding further, it is useful to highlight three principal features
that distinguish the pharmaceutical setting from other industries and markets.
1 We subscribe to their definition of an externality throughout the chapter.
 
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