Direct to Consumer Advertising in Pharmaceutical Markets

Kurt Brekke () and Michael Kuhn

No 1493, CESifo Working Paper Series from CESifo

Abstract: We study effects of direct-to-consumer advertising (DTCA) in the prescription drug market. There are two pharmaceutical firms providing horizontally differentiated (branded) drugs. Patients differ in their susceptibility to the drugs. If DTCA is allowed, this can be employed to induce (additional) patient visits. Physicians perfectly observe the patients' type (of illness), but rely on information to prescribe the correct drug. Drug information is conveyed by marketing (detailing), creating a captive and a selective segment of physicians. First, we show that detailing, DTCA and price (if not regulated) are complementary strategies for the firms. Thus, allowing DTCA induces more detailing and higher prices. Second, firms benefit from DTCA if detailing competition is not too fierce, which is true if investing in detailing is sufficiently costly. Otherwise, firms are better off with a ban on DTCA. Finally, DTCA tends to lower welfare if insurance is generous (low copayments) and/or price regulation is lenient. The desirability of DTCA also depends on whether or not the regulator is concerned with firms' profit.

Keywords: marketing; pharmaceuticals; oligopoly (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-bec, nep-com, nep-hea, nep-mkt and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Direct to consumer advertising in pharmaceutical markets (2006)
Working Paper: Direct-to-Consumer Advertising in Pharmaceutical Markets (2003)
Working Paper: Direct-to-Consumer Advertising in Pharmaceutical Markets
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1493

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