Direct-to-Consumer Advertising of Prescription Drugs: A Strategic Analysis

Consumers cannot purchase a prescription drug without a prescription from a physician, yet many prescription drugs are promoted to consumers with the help of direct-to-consumer (DTC) advertising. In this paper, we propose and test a competitive model of DTC advertising. We find that the brand specificity of DTC advertising can have an inverted U-shaped relationship with detailing, DTC advertising, and profits. Furthermore, an increase in the cross-price sensitivity between competing prescription drugs is not always detrimental to firm profits. A laboratory test lends qualitative support to some of our model predictions. We also discuss potential implications of DTC advertising for generic drugs and over-the-counter drugs.