Ask Your Doctor? Direct-to-Consumer Advertising of Pharmaceuticals

Michael Sinkinson and Amanda Starc

No 21045, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We measure the impact of direct-to-consumer television advertising (DTCA) by drug manufacturers. Our identification strategy exploits shocks to local advertising markets generated by idiosyncrasies of the political advertising cycle as well as a regulatory intervention affecting a single product. We find that a 10% increase in the number of a firm's ads leads to a 0.76% increase in revenue, while the same increase in rival advertising leads to a 0.55% decrease in firm revenue. Results also indicate that a 10% increase in category advertising produces a 0.2% revenue increase for non-advertised drugs. Both the business-stealing and spillover effects would not be detected through OLS. Decomposition using micro data confirms that the effect is due mostly to new customers as opposed to switching among current customers. Simulations show that an outright ban on DTCA would have modest effects on the sales of advertised drugs as well as on non-advertised drugs.

JEL-codes: I11 L1 (search for similar items in EconPapers)
Date: 2015-03
New Economics Papers: this item is included in nep-com, nep-hea and nep-mkt
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Citations: View citations in EconPapers (11)

Published as Michael Sinkinson, Amanda Starc; Ask Your Doctor? Direct-to-Consumer Advertising of Pharmaceuticals, The Review of Economic Studies, , rdy001, https://doi.org/10.1093/restud/rdy001

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