12Empirical evidence presented in Frank and Salkever  and Berndt, Cockburn and Griliches  is consistent with the Frank-Salkever segmented market hypothesis. Related econometric evidence from Berndt, Griliches and Rosett  suggests that over the 1986-1991 time period, prices of older drugs increased more rapidly than those on newer products. 13The original Dorfman-Steiner formulation was in the context of static optimization. Extensions to dynamic optimization are presented in Schmalensee . Most of the intuition generalizes to the dynamic environment. For additional discussions, see Hurwitz and Caves  and Leffler . 14See, for example, Berndt, Bui, Lucking-Reiley and Urban [1995,1997], Perloff and Suslow , and King . 15Generic firms may, however, engage in other marketing efforts for which the benefits are more easily internalized. We understand that generic firms market very differently from brand firms. Instead of engaging in detailing and journal advertising, generic firms tend to have home office major account representatives for particular customers, such as drug store chains, staff model managed care organizations, and mass merchandisers such as WalMart. 16The transformation factors are: Tagamet (cimetidine), 800 mg/day; Zantac (ranitidine), 300 mg/day; Pepcid, 40 mg/day; Axid, 300 mg/day; Prilosec, 20 mg/day; Prevacid, 30 mg/day; and Propulsid, 40 mg/day. Since Propulsid never had FDA approval for active duodenal ulcer treatment, we use the recommended daily dosage for treatment of nocturnal GERD. 17IMS Health . 18For an initial and preliminary analysis, see Prevention Magazine. Also see Wilkes, Bell and Kravitz . 19See STATA Reference Manual . 20For July 1995 onward (when the deflators first became available), we construct this deflator as the arithmetic average of the Producer Price Index for "Advertising agencies, ad creation, billed separately", and "Advertising agencies, media placement, including ad creation not billed". For months prior to July 1995, we employ the Producer Price Index for All Finished Goods. 21See Information Resources Inc. , Guadagni-Little , and Bucklin-Gupta . The IRI website is .