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