The effects of physician and consumer advertising on prescription drug demand

Francis Q Deane, Purdue University

Abstract

Between 1994 and 2004, national spending on prescription drugs nearly quadrupled to $188B. Concurrently, between 1996 and 2004 physician advertising expenditures more than doubled to $7.3B, and consumer advertising expenditures quintupled to $4.0B. This paper investigates the linkages between drug advertising and demand, explicitly considering the effects of own and competitor advertising. A theoretical model allowing for diagnosis and prescribing errors is developed. Own physician and consumer advertising are predicted to increase prescription likelihood. Physician advertising is predicted to decrease competitor prescription likelihood, and consumer advertising is predicted to have an indeterminate effect. Using monthly prescription volume and advertising expenditures data from January, 2000 to September, 2003, a pooled model of 105 drugs covering 13 therapeutic areas is estimated. Physician advertising is found to negatively impact competitors, but consumer advertising yields a 15% spillover. Consistent with a positive spillover, consumer advertising is found to be most effective for high share brands. The fraction of advertising expenditures devoted to consumers increases with share, suggesting brands consider the spillover when determining marketing mix.

Degree

Ph.D.

Advisors

Barron, Purdue University.

Subject Area

Marketing|Economics|Pharmaceuticals

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