How Direct-to-Consumer Advertising for Prescription Drugs Affects Consumers' Welfare: A Natural Experiment Tests The Impact of FDA Legislation

Published on Mar 1, 2017in Journal of Advertising Research
· DOI :10.2501/JAR-2016-050
Prokriti Mukherji3
Estimated H-index: 3
('KCL': King's College London),
Ramkumar Janakiraman17
Estimated H-index: 17
(USC: University of South Carolina)
+ 1 AuthorsSurendra Rajiv13
Estimated H-index: 13
(NUS: National University of Singapore)
ABSTRACT In August 1997, the U.S. Food and Drug Administration (FDA) allowed brand-specific advertising on television. A simultaneous rise in direct-to-consumer advertising (DTCA) spending and prescription drug sales has resulted in a heated debate among pharmaceutical firms and medical practitioners, as well as in the U.S. Congress and the popular press. One side claims that DTCA creates demand and higher prices for the advertised brands; the other claims that DTCA increases consumer knowledge. The current study sheds light on the debate with a comparison of consumer welfare before and after the 1997 policy change, using a structural econometric model. The results suggest that DTCA seems to be increasing consumer welfare.
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