OBJECTIVE: Pharmaceutical markets are characterized by a high degree of product differentiation, where price, consumers' income, perceived quality, and reputation interact. In addition, induced demand affects not only the impact of prices on the decision of buying a drug, but also the criteria used to prescribe it. In the Argentinean case, without patent protection, there is not a clear distinction between brand product and generics, which in turn affects the nature of competition. Marketing efforts targeting physicians (detail advertisement) consume important shares of pharmaceutical producers' budgets. On the other hand, technical progress in chemical ingredients provides consumers and physicians with new alternatives of choice. The goal of this paper is to understand the sources of differentiation among products in four Argentinean therapeutic classes, and their effects on price elasticities. METHODS: A discrete choice model of product differentiation is used to measure demands for antidiabetics, gastroprocinetics, prostatics and quinolons, during 1988-1995. Such demand functions start with an individual utility function, which is explained by observed prices, product characteristics, and consumers' tastes. The econometric implementation takes the form of a nested logit model, where the first source of substitution is by chemical ingredient, followed by variables related to marketing/reputation. RESULTS: The confirmed hypothesis is that reputation builder variables are consistently significant across therapeutic classes. CONCLUSIONS: In addition, the study shows a correspondence between the level of necessity of the drugs and the relative importance of chemical ingredients in the decision of consumption.