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Direct-to-consumer advertising and consumer welfare

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  • Jayawardhana, Jayani

Abstract

The welfare implications of direct-to-consumer advertising (DTCA) have garnered considerable attention and are complicated since the consumer delegates some decision-making authority to the physician, who is exposed to advertising as well. In this paper, I develop and estimate a structural model that explains the demand side behavior in the market for prescription drugs. I then use the estimated parameters of the model to compute the impact on consumer welfare that results from changes in demand for cholesterol-reducing drugs due to increased expenditure in DTCA. The results of the policy analysis indicate increased levels of consumer welfare due to presence of DTCA in comparison to the absence of DTCA. The results also support the argument that DTCA helps bring under-diagnosed patients to the physicians' offices. Furthermore, the results of the estimation support the informative role of DTCA on the decision to seek care, and both informative and persuasive roles of physician advertising on the choice of the drug.

Suggested Citation

  • Jayawardhana, Jayani, 2013. "Direct-to-consumer advertising and consumer welfare," International Journal of Industrial Organization, Elsevier, vol. 31(2), pages 164-180.
    • Handle: RePEc:eee:indorg:v:31:y:2013:i:2:p:164-180
    DOI: 10.1016/j.ijindorg.2012.09.001
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    Cited by:

    1. Lee, Chung-Ying, 2020. "Pricing strategy and moral hazard: Copay coupons in pharmaceuticals," International Journal of Industrial Organization, Elsevier, vol. 70(C).
    2. Gregory J. King & Xiuli Chao & Izak Duenyas, 2019. "Who Benefits When Prescription Drug Manufacturers Offer Copay Coupons?," Management Science, INFORMS, vol. 65(8), pages 3758-3775, August.
    3. Byl, Jacob P. & Viscusi, W. Kip, 2021. "Experimental study of consumer responses to different sources of information about prescription drugs," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 754-771.
    4. Chesnes, Matthew & Jin, Ginger Zhe, 2019. "Direct-to-consumer advertising and online search," Information Economics and Policy, Elsevier, vol. 46(C), pages 1-22.
    5. 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.

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    More about this item

    Keywords

    Direct-to-consumer advertising; Physician advertising; Prescription drugs; Structural model; Welfare;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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