[Ip-health] more drug advertising leads to higher drug prices

Ben Krohmal krohmal at gmail.com
Fri May 14 18:36:21 PDT 2010


Study finds that, unlike link between more advertising and lower
prices for eyeglasses, more direct to consumer advertising leads to
higher prices for pharmaceuticals.
http://www.nber.org/papers/w15969.pdf

"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."




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