The “black Box” of Strategy: Competitive Responses to and Performance from Adverse Regulatory Events
Abstract: In many markets and industries, firms face adverse regulatory events to their normal business operations. These events can be represent any change to market or industry status quo, and can trigger strategic and competitive responses by firms and shape subsequent performance. Understanding and examining competitive responses to adverse regulatory events is important, given the effects on customers, regulators, the firm itself and its rivals. In this paper, we examine the performance effects of an adverse regulatory event (a black box warning) on the competitive responses of pharmaceutical firms and their proximate and distant rivals via sales visit and promotion strategies. Black box warnings are medication-related safety warnings that appear on the package insert of prescription drug products that indicate major drug-related risks based on post-market surveillance. Sales visit and promotion strategies are the efforts by pharmaceutical firms’ sales representatives to market or otherwise promote their pharmaceutical drugs directly to doctors. We utilize a combination of publicly-available FDA data on black box warnings, and proprietary-level data on pharmaceutical firm sales visit and promotion strategies and prescriptions (Rx) written by primary care physicians (PCPs). We posit that (1) firms act strategically by changing their sales visit and promotion strategies when they or their rivals are faced with black box warnings; and (2) black box warnings and firms’ responses have direct consequences on performance. Using a variety of econometric models, we find strong overall support for our hypotheses.
