Direct to consumer advertising in pharmaceutical markets
AbstractWe 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 captive and a selective segment of physicians. First, we show that detailing, DTCA and price (if not regulated) are complementary strategies for the firms. Thus, allowing DTCA induces more detailing and higher prices. Second, firms benefit from DTCA if detailing competition is not too fierce, which is true if investing in detailing is sufficiently costly. Otherwise, firms are better off with a ban on DTCA. Finally, DTCA tends to lower welfare if insurance is generous (low copayments) and/or price regulation is lenient. The desirability of DTCA also depends on whether or not the regulator is concerned with firms' profit.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Health Economics.
Volume (Year): 25 (2006)
Issue (Month): 1 (January)
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Web page: http://www.elsevier.com/locate/inca/505560
Other versions of this item:
- Brekke, Kurt R. & Kuhn, Michael, 2003. "Direct-to-Consumer Advertising in Pharmaceutical Markets," Working Papers in Economics 05/03, University of Bergen, Department of Economics.
- Kurt R. Brekke & Michael Kuhn, 2005. "Direct to Consumer Advertising in Pharmaceutical Markets," CESifo Working Paper Series 1493, CESifo Group Munich.
- Kurt R Brekke & Michael Kuhn, . "Direct-to-Consumer Advertising in Pharmaceutical Markets," Discussion Papers 03/11, Department of Economics, University of York.
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology
- M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
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