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Impact of Direct-to-Consumer Advertising on Pharmaceutical Prices and Demand

Author

Listed:
  • Dhaval Dave

    () (Bentley University & National Bureau of Economic Research, 175 Forest Street, AAC 195, Waltham, MA 02452, USA; corresponding author)

  • Henry Saffer

    () (National Bureau of Economic Research, 365 Fifth Avenue, Suite 5318, New York, NY 10016 USA;)

Abstract

Prescription drug expenditures are the fastest growing component of health care spending, rising threefold over the 1995–2007 period. Coinciding with this growth has been a surge in direct-to-consumer advertising (DTCA), made feasible by the Food and Drug Administrations's (FDA's) clarification of rules governing broadcast advertising in 1997 and 1999. We exploit this natural experiment to investigate the separate effects of broadcast and non-broadcast DTCA on price and demand utilizing an extended monthly time series for all advertised and non-advertised drugs in four therapeutic classes spanning 1994 through 2005, a period that enveloped the shifts in FDA guidelines and the consequent DTCA expansion. Controlling for physician-directed promotion, fixed-effects models indicate broadcast DTCA positively impacts own-sales and price (elasticities of 0.10 and 0.05), while non-broadcast DTCA has a relatively smaller impact. Expansions in broadcast DTCA account for 19% of the overall growth in drug expenditures, two-thirds of this impact being driven by higher demand and the remainder due to higher prices.

Suggested Citation

  • Dhaval Dave & Henry Saffer, 2012. "Impact of Direct-to-Consumer Advertising on Pharmaceutical Prices and Demand," Southern Economic Journal, Southern Economic Association, vol. 79(1), pages 97-126, July.
  • Handle: RePEc:sej:ancoec:v:79:1:y:2012:p:97-126
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    File URL: http://dx.doi.org/10.4284/0038-4038-79.1.97
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    References listed on IDEAS

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    1. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 817-869.
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    3. Subhasish Dugar & Haimanti Bhattacharya & David Reiley, 2012. "Can'T Buy Me Love? A Field Experiment Exploring The Trade‐Off Between Income And Caste‐Status In An Indian Matrimonial Market," Economic Inquiry, Western Economic Association International, vol. 50(2), pages 534-550, April.
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    Citations

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    Cited by:

    1. Lakdawalla, Darius & Sood, Neeraj & Gu, Qian, 2013. "Pharmaceutical advertising and Medicare Part D," Journal of Health Economics, Elsevier, vol. 32(6), pages 1356-1367.
    2. Dhaval M. Dave, 2013. "Effects of Pharmaceutical Promotion: A Review and Assessment," NBER Working Papers 18830, National Bureau of Economic Research, Inc.
    3. Abby Alpert & Darius Lakdawalla & Neeraj Sood, 2015. "Prescription Drug Advertising and Drug Utilization: The Role of Medicare Part D," NBER Working Papers 21714, National Bureau of Economic Research, Inc.
    4. Matthew Chesnes & Ginger Zhe Jin, 2016. "Direct-to-Consumer Advertising and Online Search," NBER Working Papers 22582, National Bureau of Economic Research, Inc.
    5. Castanheira, Micael & de Frutos, Maria-Angeles & Ornaghi, Carmine & Siotis, Georges, 2017. "The Unexpected Consequences of Asymmetric Competition. An Application to Big Pharma," CEPR Discussion Papers 11813, C.E.P.R. Discussion Papers.
    6. repec:eee:jhecon:v:55:y:2017:i:c:p:30-44 is not listed on IDEAS

    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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