Positive Spillovers and Free Riding in Advertising of Prescription Pharmaceuticals: The Case of Antidepressants

Bradley T. Shapiro

Journal of Political Economy, 2018, vol. 126, issue 1, 381 - 437

Abstract: Exploiting the discontinuity in advertising along the borders of television markets, I estimate that television advertising of prescription antidepressants exhibits significant positive spillovers on rivals' demand. I apply this identification in a demand model, where estimated parameters indicate significant and persistent spillovers driven by market expansion. Using the demand estimates to calibrate a stylized supply model, I explore the consequences of the positive spillovers on firm advertising choice. Compared with a competitive benchmark in which firms optimally free ride, simulations suggest that a category-wide advertising cooperative would produce a significant increase in total advertising.

Date: 2018
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