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

Fuqua School of Business, Duke University, Durham, North Carolina 27708
Leeds School of Business, University of Colorado, Boulder, Colorado 80309
wilfred.amaldoss{at}duke.edu
chuan.he{at}colorado.edu

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.

Key Words: direct-to-consumer advertising; pharmaceutical marketing; experimental economics; game theory
History: Received: June 11, 2007; accepted: February 29, 2008.