What Explains the Use of Direct‐to‐Consumer Advertising of Prescription Drugs?

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Abstract
Following the clarification of advertising regulation in 1997, direct‐to‐consumer advertising (DTCA) of prescription drugs has skyrocketed in the U.S., creating a controversy over the role of DTCA. Little is known, however, regarding what affects firms' advertising decisions and which drugs have been advertised to consumers. Using brand‐level advertising data, I examine the determinants of DTCA of prescription drugs. I find that drugs that are new, of high quality, and for under‐treated diseases are more frequently advertised. Furthermore, advertising outlays decrease with competition. These results complement the demand‐side evidence that DTCA has a market‐expanding effect but little business‐stealing effect.

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