Direct-to-Consumer Advertising in Pharmaceutical Markets

Kurt Brekke () and Michael Kuhn

No 05/03, Working Papers in Economics from University of Bergen, Department of Economics

Abstract: We study effects of direct-to-consumer advertising (DTCA) in a market with two pharmaceutical firms providing horizontally differentiated (branded) drugs. Patients varying in their susceptability to medication are a priori uninformed of available medication. Physicians making the prescription choice perfectly identify a patient’s most suitable drug. Firms promote drugs to physicians (detailing) to influence prescription decisions and, if allowed, to consumers (DTCA) to increase the awareness of the drug. The main findings are: Firstly, firms benefit from DTCA only if prices are regulated. On the one hand, DTCA reduces the physicians’ market power and thus detailing expenses, while, on the other, it triggers price competition as a larger share of patients are aware of the alternatives. Secondly, under price regulation DTCA is welfare improving as long as the regulated price is not too high. Under price competition, DTCA is harmful to welfare unless detailing is wasteful and the drugs are poor substitutes.

Keywords: Advertising; Pharmaceuticals; Oligopoly (search for similar items in EconPapers)
JEL-codes: I11 L13 L65 M37 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2003-03-07
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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 (2005)
Working Paper: Direct-to-Consumer Advertising in Pharmaceutical Markets
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:bergec:2003_005

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