Competition and Disclosure Incentives: Evidence from the Pharmaceutical Industry

Abstract:

This paper studies the relationship between market structure and firms’ voluntary disclosure of product quality information. Using a dataset of 16,000 clinical trials over a 17-year period, I examine the relationship between competition and pharmaceutical firms’ incentives to disclose clinical information about drug safety and efficacy in the public trials database, ClinicalTri- als.gov. I find evidence suggesting that greater competition spurs firms to positively influence consumers’ perceptions of drug quality through investments in well-designed and more specialized trials. Further, I find that firms experiencing more competition are 24% more likely to disclose trial results, even after controlling for drug and firm characteristics. The results suggest that investment in perceived product quality and the subsequent disclosure of quality information is an important firm strategy for market entry.

Last updated on 07/08/2019