Spillovers and Other Externalities in Pharmaceutical Marketing - Innovation and Marketing in the Pharmaceutical Industry - page 670

Finally, we turn to the spillover effects, which can have either positive or negative
implications for the marketer; here we provide a quick sample of the types of effects
that have been documented. The multi-agent externality and marketing alliance
spillover often lead to an under-investment of marketing efforts; this suboptimal
behavior can be costly to the focal firm and the alliance partners. Similarly, scandal
and counter-extension spillovers can have brand dilution effects. Across-market
spillover, particularly those related to variation in government regulations, can lead
to suboptimal resource allocation decisions when the spillover is not taken into
account.
By contrast, forward and reciprocal spillover, information spillover in the context
of unadvertised attributes, prior-perception spillover, and spillover in product or
brand portfolios tend to benefit the marketer. For instance, the perceived linkages
among the various brands in a company's portfolio may enhance the effectiveness
of marketing efforts designed for each individual brand. The magnitude of enhance-
ment, however, depends on the strength and directionality of the association among
the brands (Lei et al. 2008 ).
It is worth reiterating that spillovers can affect competing brands. An early
entrant's success, e.g., may give an opportunity to a competitor who enters later and
employs a me-too strategy (Janakiraman et al. 2009 ). Such opportunities can arise
due to prior-perception and dynamic-perception spillovers among competing ethical
drugs, especially when the patients (or their de facto agents, the physicians) perceive
the brands to be similar.
Overall, previous work has documented a variety of spillover effects that have
valuable implications for companies in many settings. With that in mind, we organize
the rest of the chapter as follows: Section 23.2 reviews the relevant academic litera-
ture dealing with the various spillover effects. Section 23.3 provides an illustrative
analysis of how the effects of spillover across markets may be examined, and
expands on the sketch of the example given at the beginning of this introduction.
Section 23.4 concludes the chapter by identifying contexts within the pharmaceutical
market where spillovers can play a significant role but have received limited
research attention.

23.2 Extant Research on Spillover Effects

We now discuss a representative set of research findings on the spillover effects that
arise in various market settings.

23.2.1 The Under-Investment Effect

This is an important issue that arises in the presence of an externality involving
multiple firms or agents. Consider, for instance, a setting in which a franchisor
(such as McDonald's) manages two franchisees in a given geographical territory.