TY - JOUR AU - Dave,Dhaval AU - Saffer,Henry TI - The Impact of Direct-to-Consumer Advertising on Pharmaceutical Prices and Demand JF - National Bureau of Economic Research Working Paper Series VL - No. 15969 PY - 2010 Y2 - May 2010 UR - http://www.nber.org/papers/w15969 L1 - http://www.nber.org/papers/w15969.pdf N1 - Author contact info: Dhaval M. Dave Bentley University Department of Economics 175 Forest Street, AAC 195 Waltham, MA 02452-4705 Tel: 212/817-7955 Fax: 212/817-1597 E-Mail: ddave@bentley.edu Henry Saffer NBER 365 Fifth Avenue, 5th Floor New York, NY 10016-4309 Tel: 212/817-7956 Fax: 212/817-1597 E-Mail: hsaffer@gc.cuny.edu AB - Expenditures on prescription drugs are one of the fastest growing components of national health care spending, rising by almost three-fold between 1995 and 2007. Coinciding with this growth in prescription drug expenditures has been a rapid rise in direct-to-consumer advertising (DTCA), made feasible by the Food and Drug Administration’s (FDA) clarification and relaxation of the rules governing broadcast advertising in 1997 and 1999. This study investigates the separate effects of broadcast and non-broadcast DTCA on price and demand, utilizing an extended time series of monthly records for all advertised and non-advertised drugs in four major therapeutic classes spanning 1994-2005, a period which enveloped the shifts in FDA guidelines and the large expansions in DTCA. Controlling for promotion aimed at physicians, results from fixed effects models suggest that broadcast DTCA positively impacts own-sales and price, with an estimated elasticity of 0.10 and 0.04 respectively. Relative to broadcast DTCA, non-broadcast DTCA has a smaller impact on sales (elasticity of 0.05) and price (elasticity of 0.02). Simulations suggest that the expansion in broadcast DTCA may be responsible for about 19 percent of the overall growth in prescription drug expenditures over the sample period, with over two-thirds of this impact being driven by an increase in demand as a result of the DTCA expansion and the remainder due to higher prices. ER -