Abstract
This paper examines the effects of advertising levels on sales, business profits, and profit margins per sale in
the Japanese pharmaceutical market by using the data from the financial reports of 52 pharmaceutical firms.
Using a fixed-effects model, I show that increasing the level of advertising has significantly positive effects
on firms’ sales and business profits, but that advertising elasticities are small. To consider the advertising
characteristics, I use the subsamples of firms producing prescription and over-the-counter drugs, and estimate
the advertising effects separately. My results indicate that advertising stocks have significantly positive
effects on sales and business profits for prescription drug manufacturers, but that they have insignificant
effects on all dependent variables for over-the-counter drug manufacturers. I find that additional 10 thousand
yen of advertising increases sales by 92.6 thousand yen and business profits by 39.2 thousand yen in the
overall pharmaceutical market.
