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What Explains the Use of Direct‐to‐Consumer Advertising of Prescription Drugs?

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  • Toshiaki Iizuka

Abstract

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 are more frequently advertised. Furthermore, advertising outlays decrease with competition. These results complement the demand‐side evidence that DTCA has a market‐expanding effect but little business‐stealing effect.

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  • Toshiaki Iizuka, 2004. "What Explains the Use of Direct‐to‐Consumer Advertising of Prescription Drugs?," Journal of Industrial Economics, Wiley Blackwell, vol. 52(3), pages 349-379, September.
    • Handle: RePEc:bla:jindec:v:52:y:2004:i:3:p:349-379
    DOI: 10.1111/j.0022-1821.2004.00230.x
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    1. de Frutos, Maria-Angeles & Ornaghi, Carmine & Siotis, Georges, 2013. "Competition in the pharmaceutical industry: How do quality differences shape advertising strategies?," Journal of Health Economics, Elsevier, vol. 32(1), pages 268-285.
    2. Toshiaki Iizuka & Ginger Zhe Jin, 2005. "Drug Advertising and Health Habit," NBER Working Papers 11770, National Bureau of Economic Research, Inc.
    3. Brekke, Kurt R. & Kuhn, Michael, 2006. "Direct to consumer advertising in pharmaceutical markets," Journal of Health Economics, Elsevier, vol. 25(1), pages 102-130, January.
    4. Dhaval M. Dave, 2013. "Effects of Pharmaceutical Promotion: A Review and Assessment," NBER Working Papers 18830, National Bureau of Economic Research, Inc.
    5. Anusua Datta & Dhaval Dave, 2017. "Effects of Physician‐directed Pharmaceutical Promotion on Prescription Behaviors: Longitudinal Evidence," Health Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 450-468, April.
    6. Talia Bar & Dean R. Lillard, 2014. "Direct to Consumer Advertising of Pharmaceutical Drugs: Information and Persuasion," NBER Working Papers 19794, National Bureau of Economic Research, Inc.
    7. Katharina E. Blankart & Frank R. Lichtenberg, 2020. "Are patients more adherent to newer drugs?," Health Care Management Science, Springer, vol. 23(4), pages 605-618, December.
    8. W. David Bradford & William D. Lastrapes, 2014. "A Prescription For Unemployment? Recessions And The Demand For Mental Health Drugs," Health Economics, John Wiley & Sons, Ltd., vol. 23(11), pages 1301-1325, November.
    9. Suppliet, Moritz, 2020. "Umbrella branding in pharmaceutical markets," Journal of Health Economics, Elsevier, vol. 73(C).
    10. Dhaval Dave & Henry Saffer, 2012. "Impact of Direct‐to‐Consumer Advertising on Pharmaceutical Prices and Demand," Southern Economic Journal, John Wiley & Sons, vol. 79(1), pages 97-126, July.
    11. Matthew Ryan & Rhema Vaithianathan, 2015. "The Regulation of Direct-to-Consumer Advertising of Pharmaceuticals in a Managed Care Setting," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(6), pages 986-1021, December.
    12. Alderighi, Marco & Bianchi, Carluccio & Lorenzini, Eleonora, 2016. "The impact of local food specialities on the decision to (re)visit a tourist destination: Market-expanding or business-stealing?," Tourism Management, Elsevier, vol. 57(C), pages 323-333.
    13. Hosken, Daniel & Wendling, Brett, 2013. "Informing the uninformed: How drug advertising affects check-up visits," International Journal of Industrial Organization, Elsevier, vol. 31(2), pages 181-194.
    14. Sood, Ashish & Kappe, Eelco & Stremersch, Stefan, 2014. "The commercial contribution of clinical studies for pharmaceutical drugs," International Journal of Research in Marketing, Elsevier, vol. 31(1), pages 65-77.
    15. Jayawardhana, Jayani, 2013. "Direct-to-consumer advertising and consumer welfare," International Journal of Industrial Organization, Elsevier, vol. 31(2), pages 164-180.
    16. Toshiaki Iizuka & Ginger Zhe Jin, 2005. "The Effect of Prescription Drug Advertising on Doctor Visits," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(3), pages 701-727, September.
    17. Amrita Bhattacharyya, 2005. "Advertising in Specialized Markets: Example from the US Pharmaceutical Industry," Boston College Working Papers in Economics 610, Boston College Department of Economics, revised 10 Nov 2005.
    18. Toshiaki Iizuka, 2009. "Generic Entry In A Regulated Pharmaceutical Market," The Japanese Economic Review, Japanese Economic Association, vol. 60(1), pages 63-81, March.
    19. Regan, Tracy L., 2008. "Generic entry, price competition, and market segmentation in the prescription drug market," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 930-948, July.
    20. Laurent Linnemer, 2008. "Dissipative Advertising Signals Quality Even Without Repeat Purchases," Working Papers 2008-18, Center for Research in Economics and Statistics.
    21. Simon P. Anderson, 2005. "Regulation of Television advertising," Virginia Economics Online Papers 363, University of Virginia, Department of Economics.
    22. Guy David & Sara Markowitz, 2011. "Side Effects of Competition: the Role of Advertising and Promotion in Pharmaceutical Markets," NBER Working Papers 17162, National Bureau of Economic Research, Inc.
    23. Fee, C. Edward & Hadlock, Charles J. & Pierce, Joshua R., 2012. "What happens in acquisitions?," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 584-597.
    24. Patricia M. Danzon & Eric L. Keuffel, 2014. "Regulation of the Pharmaceutical-Biotechnology Industry," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 407-484, National Bureau of Economic Research, Inc.

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