Under the background of increasingly fierce competition in the pharmaceutical market, how to coordinate the relationship between advertising strategy and R&D strategy and improve the performance of innovative drug market has become an important issue for pharmaceutical companies. A R&D-pricing competition game theory model between duopoly pharmaceutical firms was proposed to investigate comprehensive mechanisms of advertising strategy and R&D strategy on different types of firms’ R&D incentives, prices, market shares, profits as well as the pharmaceutical market performance. It is found that there is either crowding-out effect or crowding-in effect between advertising investment and R&D effort. Only when crowding-in effect exists, the focal firm can gain competitive advantages in terms of gaining profits, but excessive investment in advertising instead leads to the loss of focal firm profits. Besides, only when the advertising investment efficiency is high enough, a larger level of advertising investment can pharmaceutical market performance. Finally, the combining impacts of price cap regulation and focal firm’s advertising strategy on firms’ profit was revealed. It is shown that price regulation will strengthen the improving effect of focal firm’s advertising strategy on its profit, and the advertising strategy helps to improve the negative effect of price cap regulation on focal firm’s market share.