IDEAS home Printed from https://ideas.repec.org/a/bla/jpbect/v17y2015i6p986-1021.html
   My bibliography  Save this article

The Regulation of Direct-to-Consumer Advertising of Pharmaceuticals in a Managed Care Setting

Author

Listed:
  • MATTHEW RYAN
  • RHEMA VAITHIANATHAN

Abstract

We analyze direct-to-consumer advertising (DTCA) in the prescription drug market, when a regulator imposes a fine for misleading advertisements (truth-in-advertising regulation) and doctors face pressure to contain prescribing costs. The efficacy of a drug is based on scientific evidence as well as on patient-specific characteristics. Patients do not possess information on either dimension of efficacy. Pharmaceutical firms observe the scientific data and use DTCA to convey this information to patients. Doctors observe both the scientific data and patient-specific characteristics, and provide treatment recommendations. We develop a model in which DTCA is followed by a doctor–patient signalling game. We show that truth-in-advertising regulation increases the credibility of DTCA and may increase both doctor–patient conflict and prescriptions for an expensive new drug—a market-stealing effect. Tighter regulation may encourage more DTCA, and may even encourage more false advertising.

Suggested Citation

  • 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.
    • Handle: RePEc:bla:jpbect:v:17:y:2015:i:6:p:986-1021
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/jpet.12129
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Davina C. Ling & Ernst R. Berndt & Margaret K. Kyle, 2002. "Deregulating Direct-to-Consumer Marketing of Prescription Drugs: Effects on Prescription and Over-the-Counter Product Sales," Journal of Law and Economics, University of Chicago Press, vol. 45(S2), pages 691-723.
    2. Sauer, Raymond D & Leffler, Keith B, 1990. "Did the Federal Trade Commission's Advertising Substantiation Program Promote More Credible Advertising?," American Economic Review, American Economic Association, vol. 80(1), pages 191-203, March.
    3. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
    4. 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.
    5. Marisa Elena Domino & David S. Salkever, 2003. "Price elasticity and pharmaceutical selection: the influence of managed care," Health Economics, John Wiley & Sons, Ltd., vol. 12(7), pages 565-586, July.
    6. Liu, Qiang & Gupta, Sachin, 2011. "The impact of direct-to-consumer advertising of prescription drugs on physician visits and drug requests: Empirical findings and public policy implications," International Journal of Research in Marketing, Elsevier, vol. 28(3), pages 205-217.
    7. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-754, July/Aug..
    8. 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.
    9. Pierre Azoulay, 2002. "Do Pharmaceutical Sales Respond to Scientific Evidence?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(4), pages 551-594, December.
    10. Berndt, Ernst R, et al, 1995. "Information, Marketing, and Pricing in the U.S. Antiulcer Drug Market," American Economic Review, American Economic Association, vol. 85(2), pages 100-105, May.
    11. 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.
    12. Paul H. Rubin & Joel L. Schrag, 1999. "Mitigating Agency Problems by Advertising, with Special Reference to Managed Health Care," Southern Economic Journal, John Wiley & Sons, vol. 66(1), pages 39-60, July.
    13. John E. Calfee & Clifford Winston & Randolph Stempski, 2002. "Direct-to-Consumer Advertising and the Demand for Cholesterol-Reducing Drugs," Journal of Law and Economics, University of Chicago Press, vol. 45(S2), pages 673-690.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dhaval M. Dave, 2013. "Effects of Pharmaceutical Promotion: A Review and Assessment," NBER Working Papers 18830, National Bureau of Economic Research, Inc.
    2. 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.
    3. 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.
    4. 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.
    5. Suppliet, Moritz, 2020. "Umbrella branding in pharmaceutical markets," Journal of Health Economics, Elsevier, vol. 73(C).
    6. Stefan Stremersch & Vardit Landsman & Sriram Venkataraman, 2013. "The Relationship Between DTCA, Drug Requests, and Prescriptions: Uncovering Variation in Specialty and Space," Marketing Science, INFORMS, vol. 32(1), pages 89-110, June.
    7. 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.
    8. Meltem Daysal, N. & Orsini, C., 2012. "Spillover Effects of Drug Safety Warnings on Health Behavior," Discussion Paper 2012-025, Tilburg University, Center for Economic Research.
    9. 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.
    10. Jayawardhana, Jayani, 2013. "Direct-to-consumer advertising and consumer welfare," International Journal of Industrial Organization, Elsevier, vol. 31(2), pages 164-180.
    11. Kremer, Sara T.M. & Bijmolt, Tammo H.A. & Leeflang, Peter S.H. & Wieringa, Jaap E., 2008. "Generalizations on the effectiveness of pharmaceutical promotional expenditures," International Journal of Research in Marketing, Elsevier, vol. 25(4), pages 234-246.
    12. 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.
    13. W. David Bradford & Andrew N. Kleit, 2011. "Can Credence Advertising Effects Be Isolated? Can They Be Negative?: Evidence from Pharmaceuticals," Southern Economic Journal, John Wiley & Sons, vol. 78(1), pages 167-190, July.
    14. Andrew T. Ching & Robert Clark & Ignatius Horstmann & Hyunwoo Lim, 2016. "The Effects of Publicity on Demand: The Case of Anti-Cholesterol Drugs," Marketing Science, INFORMS, vol. 35(1), pages 158-181, January.
    15. Liu, Qiang & Gupta, Sachin, 2011. "The impact of direct-to-consumer advertising of prescription drugs on physician visits and drug requests: Empirical findings and public policy implications," International Journal of Research in Marketing, Elsevier, vol. 28(3), pages 205-217.
    16. Matear, Margaret & Dacin, Peter A., 2010. "Marketing and societal welfare: A multiple stakeholder approach," Journal of Business Research, Elsevier, vol. 63(11), pages 1173-1178, November.
    17. Svetlana Beilfuss & Sebastian Linde, 2021. "Pharmaceutical opioid marketing and physician prescribing behavior," Health Economics, John Wiley & Sons, Ltd., vol. 30(12), pages 3159-3185, December.
    18. Lakdawalla, Darius & Sood, Neeraj & Gu, Qian, 2013. "Pharmaceutical advertising and Medicare Part D," Journal of Health Economics, Elsevier, vol. 32(6), pages 1356-1367.
    19. Fang Hai & Rizzo John, 2011. "Does Patient Use of Medical Information Affect Physician Practice Incentives to Provide Care?," Forum for Health Economics & Policy, De Gruyter, vol. 14(2), pages 1-22, March.
    20. Salvatore Piccolo & Piero Tedeschi & Giovanni Ursino, 2018. "Deceptive Advertising with Rational Buyers," Management Science, INFORMS, vol. 64(3), pages 1291-1310, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jpbect:v:17:y:2015:i:6:p:986-1021. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/apettea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.