Advertising increases demand for the equivalent drugs: a theoretical model

Abstract The purpose of this paper is to investigate how companies compete in the pharmaceuticals market where the quality level of products is regulated by the government and where the use of certification to increase the level of quality perceived by the consumer does not influence the choice of purchase. We chose the pharmaceutical market because this is a very peculiar market where consumers do not act in a completely rational manner, in fact for the same quality of product they do not always buy the one with the lowest price. Starting with the Auriol-Schilizzi model (2015) and introducing the possibility for the pharmaceutical equivalent generic drug companies to run an advertising campaign we try to answer our research question. This research question is whether a pharmaceutical equivalent generic drug can compete with a branded product by implementing advertising campaigns. We show that the advertising campaigns could help the EGD companies to increase the quantity of products sold.