Ask Your Doctor? Direct-to-Consumer Advertising of Pharmaceuticals

In a National Bureau of Economic Research working paper, Michael Sinkinson and Amanda Starc assess the impact of direct-to-customer television advertising by pharmaceutical companies. The authors analyze the effectiveness of TV advertising for anti-cholesterol drugs known as statins, exploiting a natural experiment created by shocks to local advertising markets from the political advertising cycle, as well as a regulatory intervention affecting a single product. Their analysis finds that a 10% increase in the number of ads run by a particular firm leads to a 0.76% increase in revenue. The same increase in a rival’s advertising leads to a 0.55% decrease in firm revenue. Results also indicate that a 10% increase in category advertising produces a 0.2% revenue increase for other non-advertised drugs in that category. The data show that the effect is due mostly to new customers. Simulations show that an outright ban on direct-to-consumer television advertising would have modest effects on the sales of advertised drugs as well as on non-advertised drugs.