Working Paper: NBER ID: w19794
Authors: Talia Bar; Dean R. Lillard
Abstract: 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.
Keywords: Direct-to-Consumer Advertising; Pharmaceuticals; Consumer Behavior; Welfare Economics
JEL Codes: I18; L15; L65; M37
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher DTCA spending (H51) | Increased consumer awareness of health conditions and available treatments (I11) |
| Higher DTCA spending (H51) | Increased likelihood to seek medical advice (I12) |
| DTCA (Y10) | Greater perceived benefits from advertised drugs (M37) |
| Greater perceived benefits from advertised drugs (M37) | Increased demand for those drugs (R22) |
| Informative advertising (M38) | Enhanced welfare by reducing untreated conditions (I39) |
| Persuasive advertising (M38) | Welfare losses due to distorted consumer perceptions of treatment efficacy (D18) |
| Profitability of DTCA (D49) | Higher when prevalence of health condition is significant (I12) |
| Profitability of DTCA (D49) | Higher when symptoms are more informative (D80) |