Direct-to-Consumer Advertising in Pharmaceutical Markets
We study effects of direct-to-consumer advertising (DTCA) in a market with two pharmaceutical firms providing horizontally differentiated (branded) drugs. Patients varying in their susceptability to medication are a priori uninformed of available medication. Physicians making the prescription choice perfectly identify a patient’s most suitable drug. Firms promote drugs to physicians (detailing) to influence prescription decisions and, if allowed, to consumers (DTCA) to increase the awareness of the drug. The main findings are: Firstly, firms benefit from DTCA only if prices are regulated. On the one hand, DTCA reduces the physicians’ market power and thus detailing expenses, while, on the other, it triggers price competition as a larger share of patients are aware of the alternatives. Secondly, under price regulation DTCA is welfare improving as long as the regulated price is not too high. Under price competition, DTCA is harmful to welfare unless detailing is wasteful and the drugs are poor substitutes.
|Date of creation:||07 Mar 2003|
|Date of revision:|
|Contact details of provider:|| Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway|
Web page: http://www.uib.no/econ/en
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
- Stergios Skaperdas, 1996.
"Contest success functions (*),"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 283-290.
- Toshiaki Iizuka & Ginger Zhe Jin, 2005. "The Effect of Prescription Drug Advertising on Doctor Visits," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(3), pages 701-727, 09.
- Leffler, Keith B, 1981. "Persuasion or Information? The Economics of Prescription Drug Advertising," Journal of Law and Economics, University of Chicago Press, vol. 24(1), pages 45-74, April.
- Berndt, Ernst R, et al, 1995. "Information, Marketing, and Pricing in the U.S. Antiulcer Drug Market," American Economic Review, American Economic Association, vol. 85(2), pages 100-105, May.
- 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.
- Antonio Cabrales, 2003.
"Pharmaceutical Generics, Vertical Product Differentiation, and Public Policy,"
54, Barcelona Graduate School of Economics.
- Antonio Cabrales, 2003. "Pharmaceutical generics, vertical product differentiation and public policy," Economics Working Papers 662, Department of Economics and Business, Universitat Pompeu Fabra.
- Antonio Cabrales, 2003. "Pharmaceutical generics, vertical product differentiation and public policy," Working Papers, Research Center on Health and Economics 662, Department of Economics and Business, Universitat Pompeu Fabra.
- Eckard, E Woodrow, Jr, 1991. "Competition and the Cigarette TV Advertising Ban," Economic Inquiry, Western Economic Association International, vol. 29(1), pages 119-33, January.
- S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Multiproduct Firms, Product Differentiation, and Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
- Scherer, F.M., 2000. "The pharmaceutical industry," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 25, pages 1297-1336 Elsevier.
- Pierre Azoulay, 2002. "Do Pharmaceutical Sales Respond to Scientific Evidence?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(4), pages 551-594, December.
- Grabowski, Henry G & Vernon, John M, 1992. "Brand Loyalty, Entry, and Price Competition in Pharmaceuticals after the 1984 Drug Act," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 331-50, October.
- Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-66, May.
- Toshiaki Iizuka, 2004. "What Explains the Use of Direct-to-Consumer Advertising of Prescription Drugs?," Journal of Industrial Economics, Wiley Blackwell, vol. 52(3), pages 349-379, 09.
- Lundin, Douglas, 2000. "Moral hazard in physician prescription behavior," Journal of Health Economics, Elsevier, vol. 19(5), pages 639-662, September.
- Rizzo, John A, 1999. "Advertising and Competition in the Ethical Pharmaceutical Industry: The Case of Antihypertensive Drugs," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 89-116, April.
- Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 63-81.
- Konigbauer, Ingrid, 2007. "Advertising and generic market entry," Journal of Health Economics, Elsevier, vol. 26(2), pages 286-305, March.
- Paul H. Rubin & Joel L. Schrag, 1999. "Mitigating Agency Problems by Advertising, with Special Reference to Managed Health Care," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 39-60, July.
- Hurwitz, Mark A & Caves, Richard E, 1988. "Persuasion or Information? Promotion and the Shares of Brand Name and Generic Pharmaceuticals," Journal of Law and Economics, University of Chicago Press, vol. 31(2), pages 299-320, October.
- Z. John Lu & William S. Comanor, 1998. "Strategic Pricing Of New Pharmaceuticals," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 108-118, February.
- Scott Morton, Fiona M., 2000. "Barriers to entry, brand advertising, and generic entry in the US pharmaceutical industry," International Journal of Industrial Organization, Elsevier, vol. 18(7), pages 1085-1104, October.
When requesting a correction, please mention this item's handle: RePEc:hhs:bergec:2003_005. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kjell Erik Lommerud)
If references are entirely missing, you can add them using this form.