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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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  • 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 same†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.

Suggested Citation

  • 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.
  • Handle: RePEc:ucp:jlawec:doi:10.1086/368004
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    Citations

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    Cited by:

    1. 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.
    2. Dhaval M. Dave, 2013. "Effects of Pharmaceutical Promotion: A Review and Assessment," NBER Working Papers 18830, National Bureau of Economic Research, Inc.
    3. John Cawley & John A. Rizzo, 2005. "The Competitive Effects of Drug Withdrawals," NBER Working Papers 11223, National Bureau of Economic Research, Inc.
    4. repec:mpr:mprres:5058 is not listed on IDEAS
    5. repec:wly:hlthec:v:26:y:2017:i:4:p:450-468 is not listed on IDEAS
    6. Meredith B. Rosenthal & Ernst R. Berndt & Julie M. Donohue & Arnold M. Epstein & Richard G. Frank, 2003. "Demand Effects of Recent Changes in Prescription Drug Promotion," NBER Chapters,in: Frontiers in Health Policy Research, Volume 6, pages 1-26 National Bureau of Economic Research, Inc.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. repec:eee:ijrema:v:25:y:2008:i:4:p:234-246 is not listed on IDEAS
    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. Arcidiacono, Peter & Ellickson, Paul B. & Landry, Peter & Ridley, David B., 2013. "Pharmaceutical followers," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 538-553.
    14. Peter Leeflang & Jaap Wieringa, 2010. "Modeling the effects of pharmaceutical marketing," Marketing Letters, Springer, vol. 21(2), pages 121-133, June.
    15. Rosemary Avery & Donald Kenkel & Dean Lillard & Alan Mathios, 2007. "Regulating advertisements: the case of smoking cessation products," Journal of Regulatory Economics, Springer, vol. 31(2), pages 185-208, April.
    16. Eaves, Emery R., 2015. "“Just Advil”: Harm reduction and identity construction in the consumption of over-the-counter medication for chronic pain," Social Science & Medicine, Elsevier, vol. 146(C), pages 147-154.
    17. repec:eee:socmed:v:196:y:2018:i:c:p:131-141 is not listed on IDEAS
    18. Su Liu & Deborah Chollet, "undated". "Price and Income Elasticity of the Demand for Health Insurance and Health Care Services: A Critical Review of the Literature," Mathematica Policy Research Reports dbf03ba11863430593b0b825f, Mathematica Policy Research.
    19. 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.
    20. Davina C. Ling & Ernst R. Berndt & Richard G. Frank, 2008. "Economic Incentives And Contracts: The Use Of Psychotropic Medications," Contemporary Economic Policy, Western Economic Association International, vol. 26(1), pages 49-72, January.
    21. Rosemary Avery & Donald Kenkel & Dean R. Lillard & Alan Mathios, 2007. "Private Profits and Public Health: Does Advertising of Smoking Cessation Products Encourage Smokers to Quit?," Journal of Political Economy, University of Chicago Press, vol. 115, pages 447-481.
    22. 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.
    23. Andrew Epstein & Scott Johnson, 2012. "Physician response to financial incentives when choosing drugs to treat breast cancer," International Journal of Health Economics and Management, Springer, vol. 12(4), pages 285-302, December.
    24. 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.

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