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Direct to Consumer Advertising of Pharmaceutical Drugs: Information and Persuasion

  • Talia Bar
  • Dean R. Lillard

We formally model direct to consumer advertising (DTCA) of prescription drugs and examine factors that determine a pharmaceutical firm's DTCA strategy. We highlight how the profitability of DTCA varies with the characteristics of the condition that the advertised drug treats, the incidence of the condition, and the signal value of symptoms, and risk factors. We account for the potential information benefits from DTCA as well as its potential to persuade consumers. From a welfare perspective there can be too much or too little private investment in advertising. Welfare is more likely to increase when the population is uninsured.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19794.

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Date of creation: Jan 2014
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Handle: RePEc:nbr:nberwo:19794
Note: HE IO
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  1. Brekke, Kurt R. & Kuhn, Michael, 2003. "Direct-to-Consumer Advertising in Pharmaceutical Markets," Working Papers in Economics 05/03, University of Bergen, Department of Economics.
  2. 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.
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