Direct-to-Consumer Advertising in Pharmaceutical Markets

Kurt Brekke () and Michael Kuhn

Discussion Papers from Department of Economics, University of York

Abstract: We study effects of direct-to-consumer advertising (DTCA) in a mar- ket with two pharmaceutical firms providing horizontally dierentiated (branded) drugs. Patients varying in their susceptability to medication are a prioriuninformed 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 Þndings are: Firstly, Þrms beneÞt fromDTCAonlyif 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 lowers 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)
New Economics Papers: this item is included in nep-com and nep-hea
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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 (2003)
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