Department of Economics
University of Connecticut
365 Fairfield Way Unit 1063
Storrs, CT 06269-1063
NBER Working Papers and Publications
|January 2014||Direct to Consumer Advertising of Pharmaceutical Drugs: Information and Persuasion|
with Dean R. Lillard: w19794
We formally model direct to consumer advertising (DTCA) of prescription drugs and examine factors that determine a pharmaceutical firm's DTCA strategy. We highlight how the profitability of DTCA varies with the characteristics of the condition that the advertised drug treats, the incidence of the condition, and the signal value of symptoms, and risk factors. We account for the potential information benefits from DTCA as well as its potential to persuade consumers. From a welfare perspective there can be too much or too little private investment in advertising. Welfare is more likely to increase when the population is uninsured.