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in this paper we're looking at the effect of direct-to-consumer advertising and prescription drugs no Americans were
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constantly surrounded by advertising in our daily lives and economist we often think about advertising having one of
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two different effects you could think of an informational effect letting consumers know that a certain product
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exists or you could think of more of a business stealing effect convincing you to buy the good from firm B instead of
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from firm a now of course in the context of prescription drugs it's an even more
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kind of unique setting the United States has only allowed firms to advertise drugs to consumers since 1997 and to the
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state most developed countries don't allow for incentive to advertise pharmaceuticals to consumers so it's a
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very interesting question and if you're a regulator you care a lot about well
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our drug ads informing patients about potential treatments for their condition or is it really just about getting you
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to buy from one firm instead of the other so in this research we actually look at the category of drugs called
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statins statins are anti cholesterol drugs such as sake restore or lipitor these are kind of a big category of
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drugs both in terms of how people take them and how they advertise and so in an ideal world we'd like to go to run an
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experiment show ads to some people but not to others and see what happens sure enough that's actually pretty hard to do
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in the real world so we do instead is we exploit the fact that the political process in United States actually really
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messes up local advertising markets so for example we use the fact that in the weeks leading up to the Iowa caucuses
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and the New Hampshire primary tens of thousands of political ads pour into those media markets and those political
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ads actually displace drug ads so people in those markets don't see drug ads that
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month and of course after those contests are over the political ads pour into South Carolina in florida and nevada and
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so on so that gives us a natural experiment we can use to say what happens when people in certain markets
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don't see drug ads while people other markets do and our findings are quite interesting so we have two main findings
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the first is that among the on patent branded advertised drugs these ads are really big a really big on business
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stealing they really are about convincing consumers to buy from one firm versus another
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and so we find that that's that's actually quite pronounced among these firms however we also find that for the
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drugs that are off patents but in the same category so a generic statin they took they don't advertise and the
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typical at a much lower price turns out those drugs benefit from those same ads that are produced by the on patent
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branded drugs so that's actually a very good story that says there are people
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going to talk to their doctor about this condition however some of them tend to walk away with a prescription for a
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lower priced off-patent substitute drug instead of the one that was actually advertised
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so I think for regulators a big takeaway you're concerned as a regulator that if
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these are really just business dealing the result could be that drug advertising results in just hire drug
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prices or even overmedicated patients now those be a good outcome one of the really nice takeaways we find that there
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is a positive effect there is a nice spill over to these other less expensive non advertised drugs and so there is a
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positive effect of advertising people are talking to their doctor about their health concerns if you're a firm however
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the takeaway is a bit different because if you advertise and it's it has this
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business stealing effect among these these kind of branded drugs well what does that really mean it means it's very
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easy for us to get sucked into a bit of an advertising war where if you advertise a lot maybe then I have to
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advertise as well and we're both spending a lot of money and not getting as much out of it as we would like
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previous research had looked a bit at this question of what's the effect of drug advertising and there are some
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papers that have shown you know for example that at the category level drug ads do have a bit of a spillover effect
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and so that that wasn't particularly surprising however finding the the rivalry affects the business stealing
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among firms that was a bit more surprising the popular press had had some quotes from executives some of
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these firms kind of questioning the value of this advertising they were saying it's a very expensive thing to do
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and they weren't sure that they were getting much out of it and they were wondering if it was really just them
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fighting over a small pool of consumers so uh that has not really been shown in research before and I think our approach
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here was fairly novel and let us get out that question for the first time so I think if you're a regulator right
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you really like the positive spillover effect of this and that's going to go
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away when there are no more patented drugs in a category right so when the last Staten is to go off patent it's
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unlikely we'll see any more staten ads on TV and we might have fewer people talking to their doctor about their
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cholesterol and actually fewer people taking these drugs which are very you know generally speaking cost effective
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so as a regular you do care a lot about that I mean that said this category has plenty of breakthroughs on the horizon
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so I don't think it's an imminent concern but this general finding applies
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to many other medical categories as well and so what kind of you know ask the question does the FDA need to be telling
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consumers to go talk to their doctor about their health concerns those who need to be some some other body doing
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this advertising if firms stop advertising when they lose the benefits of patent coverage
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people are used to seeing a lot of drug ads on TV and I think they may have noticed over time that the drugs going
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to be targeting odd or more obscure conditions and so I think it's just good
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to remind everyone that these are really useful ads if through the informational
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effect I mean it's good to have patience going and talk to the doctors about
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their condition so you know even though we might think there's a tad too many
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drug ads on TV they do serve a very useful purpose for patients we were very unique in that were able to
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get at this business ceiling effect separately from just the informational effect so being able to tease apart the
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two force is really big you know we think our approach is very novel we have this clever natural experiment to get
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out this question and we think we're the first to really make this this point
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very clear it's going to have big implications for both firms and regulators going forward
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so my co-author Amanda stock also have Wharton and I have enjoyed this project immensely this was really about what
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does the effective ads on consumers the follow-up were working on now is trying to get inside the heads of the
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advertisers themselves and figure out how they respond to market conditions rival actions and also patent expiry
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when thinking about their advertising decisions you