Direct-to-consumer advertising and consumer welfare

Published on Mar 1, 2013in International Journal of Industrial Organization1.761
· DOI :10.1016/J.IJINDORG.2012.09.001
Jayani Jayawardhana9
Estimated H-index: 9
(UGA: University of Georgia)
Sources
Abstract
The welfare implications of direct-to-consumer advertising (DTCA) have garnered considerable attention and are complicated since the consumer delegates some decision-making authority to the physician, who is exposed to advertising as well. In this paper, I develop and estimate a structural model that explains the demand side behavior in the market for prescription drugs. I then use the estimated parameters of the model to compute the impact on consumer welfare that results from changes in demand for cholesterol-reducing drugs due to increased expenditure in DTCA. The results of the policy analysis indicate increased levels of consumer welfare due to presence of DTCA in comparison to the absence of DTCA. The results also support the argument that DTCA helps bring under-diagnosed patients to the physicians' offices. Furthermore, the results of the estimation support the informative role of DTCA on the decision to seek care, and both informative and persuasive roles of physician advertising on the choice of the drug.
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References23
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#1Michelle S. Goeree (SC: University of Southern California)H-Index: 6
Traditional discrete-choice models assume buyers are aware of all products for sale. In markets where products change rapidly, the full information assumption is untenable. I present a discrete-choice model of limited consumer information, where advertising influences the set of products from which consumers choose to purchase. I apply the model to the U.S. personal computer market where top firms spend over $2 billion annually on advertising. I find estimated markups of 19% over production cost...
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#1Toshiaki Iizuka (Aoyama Gakuin University)H-Index: 13
#2Ginger Zhe Jin (UMD: University of Maryland, College Park)H-Index: 30
This paper examines the effect of direct-to-consumer advertising (DTCA) of prescription drugs on doctors' choice of drug brands. Using antihistamines as an example, we show that DTCA has little effect on the choice of brand despite the massive DTCA expenditure incurred in this class. In contrast, promotional activities directed toward physicians have larger and longer lasting effects. These results, together with the market-expanding results shown in Iizuka and Jin (2005), suggest that DTCA is e...
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#1Kurt Richard Brekke (NHH: Norwegian School of Economics)H-Index: 23
#2Michael Kuhn (University of Rostock)H-Index: 17
We study effects of direct-to-consumer advertising (DTCA) in the prescription drug market. There are two pharmaceutical firms providing horizontally differentiated (branded) drugs. Patients differ in their susceptibility to the drugs. If DTCA is allowed, this can be employed to induce (additional) patient visits. Physicians perfectly observe the patients' type (of illness), but rely on information to prescribe the correct drug. Drug information is conveyed by marketing (detailing), creating a ca...
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#1Toshiaki IizukaH-Index: 13
#2Ginger Zhe Jin (UMD: University of Maryland, College Park)H-Index: 30
The dramatic increase of direct-to-consumer advertising (DTCA) of prescription drugs created intensive debates on its effects on patient and doctor behaviors. Combining 1994‚Äď2000 DTCA data with the 1995‚Äď2000 National Ambulatory Medical Care Surveys, we examine the effect of DTCA on doctor visits. Consistent with the proponents' claim, we find that higher DTCA expenditures are associated with increased doctor visits, especially after the Food and Drug Administration clarified DTCA rules in August...
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#1Toshiaki Iizuka (Vandy: Vanderbilt University)H-Index: 13
Following the clarification of advertising regulation in 1997, direct-to-consumer advertising (DTCA) of prescription drugs has skyrocketed in the U.S., creating a controversy over the role of DTCA. Little is known, however, regarding what affects firms' advertising decisions and which drugs have been advertised to consumers. Using brand-level advertising data, I examine the determinants of DTCA of prescription drugs. I find that drugs that are new, of high quality, and for under-treated diseases...
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#1Daniel A. Ackerberg (UCLA: University of California, Los Angeles)H-Index: 22
This article empirically analyzes different effects of advertising in a nondurable, experience good market. A dynamic learning model of consumer behavior is presented in which I allow both ‚Äúinformative‚ÄĚ effects of advertising and ‚Äúprestige‚ÄĚ or ‚Äúimage‚ÄĚ effects of advertising. This learning model is estimated using consumer level panel data tracking grocery purchases and advertising exposures over time. Empirical results suggest that in this market, advertising's primary effect was that of informi...
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#1Marta Wosinska (Harvard University)H-Index: 7
Three out of four patients who ask a physician for a drug get it prescribed. Do patients really wield so much influence? Empirical analysis of patient-level prescription claims reveals that direct-to-consumer advertising does impact the choice probability but there are two caveats. First, the impact of promotions aimed directly at physicians is significantly higher. Consequently, advertising affects the treatment probability benefiting all competing brands. Second, advertising infleunces demand ...
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Abstract In August 1997, the Food and Drug Administration (FDA) reinterpreted its advertising regulations to ease limits on the use of broadcast media when advertising prescription drugs directly to consumers. We estimate the effect of direct‚Äźto‚Äźconsumer advertising on demand, using 1995‚Äď2000 data from the market for the statin class of cholesterol‚Äźreducing drugs. We find no statistically significant effect from any form of advertising and promotion on new statin prescriptions or renewals and no...
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#1Kyle BagwellH-Index: 55
This book brings together over thirty of the most influential previously published articles on the economics of advertising. Topics covered include an exploration of the welfare consequences of persuasive advertising and informative advertising; an analysis of informative advertising in search-goods markets and as a signal of quality in experience-goods markets; and an examination of the use of advertising to deter entry to the market by rivals, to pre-empt rivals or conversely to collude with t...
This paper uses data on the majority of name-brand antihypertensive drugs marketed in the United States during 1988-93 to test the hypothesis that advertising decreases the price elasticity of demand in the pharmaceutical industry. This is the first study to directly estimate the effects of drug product promotion on the price elasticity of demand in this industry. We find strong evidence of an advertising effect. In particular, detailing efforts (the salient means for product promotion in this i...
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#1Jacob P. Byl (Western Kentucky University)H-Index: 2
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Abstract Consumers receive risk information about prescription drugs from many sources, including from largely unregulated attorney advertisements. This experiment measures subjective risk beliefs about prescription drugs and subjects’ drug-taking behavior in an incentivized setting. Results of the experiment are used to estimate a Bayesian learning model to ascertain the risk levels implied by different information sources and the informational weights subjects place on these sources. Even afte...
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Abstract Branded drug manufacturers issue copay coupons to compete with generics as their brands are coming off patent. To explore the impact of copay coupons on pricing and welfare, I estimate a model of demand and supply using data on sales, advertising, and copayment for cholesterol-lowering drugs and perform a counterfactual analysis to simulate equilibrium pricing with copay coupons used for price discrimination and moral hazard. Copay coupons issued for price discrimination make the drug w...
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Abstract Beginning in 1997, the Food and Drug Administration (FDA) allowed television advertisements to make major statements about a prescription drug, while referring to detailed information on the internet. The hope was that consumers would seek additional information online to understand the risks and benefits of taking the medication. This policy motivates us to analyze direct-to-consumer advertising (DTCA) and search engine click-through data on a set of drugs over the period from 2008 to ...
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Exploiting the discontinuity in advertising along the borders of television markets, I estimate that television advertising of prescription antidepressants exhibits significant positive spillovers on rivals’ demand. I apply this identification in a demand model, where estimated parameters indicate significant and persistent spillovers driven by market expansion. Using the demand estimates to calibrate a stylized supply model, I explore the consequences of the positive spillovers on firm advertis...
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#1Hsien Yen Chang (Johns Hopkins University)H-Index: 27
#2Irene B. Murimi (Johns Hopkins University)H-Index: 8
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The value of direct-to-consumer advertising (DTCA) of prescription drugs is widely debated, as is the effect of DTCA on prescription sales and health care utilization.We examined the association between DTCA intensity for statin medications and prescription sales and cholesterol-related health care utilization.We conducted an ecological study for 75 designated market areas from 2005 to 2009 in the United States using linked data regarding televised DTCA volume, non-DTCA marketing and promotion, ...
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#1Andrew T. Ching (Johns Hopkins University)H-Index: 18
#2C. Robert Clark (HEC Montréal)H-Index: 8
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Over the past 10 years there has been increased recognition of the importance of publicity as a means of generating product awareness. Despite this, previous research has seldom investigated the impact of publicity on demand. We contribute to the literature by (i) proposing a new method for the interpretation of publicity data, one that maps the information in news articles (or broadcasts) to a multidimensional attribute space; (ii) investigating how different types of publicity affect demand; a...
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University of Minnesota Ph.D. dissertation. June 2014. Major: Economics. Advisors: Thomas J Holmes & Amil Petrin. 1 computer file (PDF); ix, 130 pages, appendices A-B.
#1Bradley T. ShapiroH-Index: 6
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