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Deregulating Direct-to-Consumer Marketing of Prescription Drugs: Effects on Prescription and Over-the-Counter Product Sales

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Author Info

  • Davina C. Ling
  • Ernst R. Berndt
  • Margaret K. Kyle

Abstract

This paper examines the impact and interrelationships between direct-to-consumer (DTC) and physician-oriented marketing on the sales composition of the prescription (Rx) and over-the-counter (OTC) versions of antiulcer and heartburn medications. To understand better the implications for competition of the 1997 Food and Drug Administration’s policies regarding DTC marketing, as well as recent Rx-to-OTC switch approvals, we also examine the relationship between order-of-entry effects and marketing intensities. We find spillover effects of marketing for Rx drugs on sameâ€brand OTC versions of the drugs. We also find that the ratio of cumulative marketing intensity (cumulative marketing efforts divided by cumulative sales) in the OTC segment increases monotonically with order of entry. Our regression results show that various marketing demand elasticities depend on order of entry. Our findings document the importance of nonprice competition in the OTC drug market and suggest that the recent deregulation of Rx DTC marketing enhances rivalry and facilitates competition.

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File URL: http://www.jstor.org/stable/full/10.1086/368004
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Bibliographic Info

Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

Volume (Year): 45 (2002)
Issue (Month): S2 ()
Pages: 691-723

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Handle: RePEc:ucp:jlawec:doi:10.1086/368004

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Web page: http://www.journals.uchicago.edu/JLE/

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Cited by:
  1. Dhaval M. Dave, 2013. "Effects of Pharmaceutical Promotion: A Review and Assessment," NBER Working Papers 18830, National Bureau of Economic Research, Inc.
  2. John Cawley & John A. Rizzo, 2005. "The Competitive Effects of Drug Withdrawals," NBER Working Papers 11223, National Bureau of Economic Research, Inc.
  3. Bart J. Bronnenberg & Jean-Pierre H. Dube & Matthew Gentzkow, 2010. "The Evolution of Brand Preferences: Evidence from Consumer Migration," NBER Working Papers 16267, National Bureau of Economic Research, Inc.
  4. Kurt R Brekke & Michael Kuhn, . "Direct-to-Consumer Advertising in Pharmaceutical Markets," Discussion Papers 03/11, Department of Economics, University of York.
  5. Anusua Datta & Dhaval M. Dave, 2013. "Effects of Physician-Directed Pharmaceutical Promotion on Prescription Behaviors: Longitudinal Evidence," NBER Working Papers 19592, National Bureau of Economic Research, Inc.
  6. Andrew Epstein & Scott Johnson, 2012. "Physician response to financial incentives when choosing drugs to treat breast cancer," International Journal of Health Care Finance and Economics, Springer, Springer, vol. 12(4), pages 285-302, December.
  7. Patricia M. Danzon & Eric L. Keuffel, 2013. "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.
  8. Rosemary Avery & Donald Kenkel & Dean R. Lillard & Alan Mathios, 2006. "Private Profits and Public Health: Does Advertising Smoking Cessation Products Encourage Smokers to Quit?," NBER Working Papers 11938, National Bureau of Economic Research, Inc.
  9. Peter Leeflang & Jaap Wieringa, 2010. "Modeling the effects of pharmaceutical marketing," Marketing Letters, Springer, Springer, vol. 21(2), pages 121-133, June.
  10. Rosemary J. Avery & Donald S. Kenkel & Dean R. Lillard & Alan D. Mathios, 2006. "Regulating Advertisements: The Case of Smoking Cessation Products," NBER Working Papers 12001, National Bureau of Economic Research, Inc.
  11. Hosken, Daniel & Wendling, Brett, 2013. "Informing the uninformed: How drug advertising affects check-up visits," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 31(2), pages 181-194.
  12. Bart J. Bronnenberg & Jean-Pierre H. Dube & Matthew Gentzkow, 2012. "The Evolution of Brand Preferences: Evidence from Consumer Migration," American Economic Review, American Economic Association, vol. 102(6), pages 2472-2508, October.
  13. Su Liu & Deborah Chollet, 2006. "Price and Income Elasticity of the Demand for Health Insurance and Health Care Services," Mathematica Policy Research Reports, Mathematica Policy Research 5058, Mathematica Policy Research.

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