Economics Department

Working Papers in Economics

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TITLE:
Advertising in Specialized Markets: Example from the US Pharmaceutical Industry

AUTHOR(S):
Amrita Bhattacharyya, Boston College

DOCUMENT TYPE: Article

ABSTRACT:
Pharmaceutical companies spend billions of dollars on advertising prescription drugs to doctors and also to consumers directly. People wonder why is direct-to-consumer-advertising (DTCA) concentrated among only a few classes of drugs, what explains the within-class variation of DTCA, how are DTCA and physician advertising related. We analyze the advertising equilibriums in prescription drugs market and find that it is possible to have a sub-game perfect non-symmetric Nash-equilibrium when, (i) the number of patients who are aware of a treatment is very low, and (ii) there are very few people who insist on having a particular drug. Otherwise, for very familiar diseases a non-advertising equilibrium is most likely. We also find that, all competing brands in a class are likely to advertise to consumers if the number of insisting patients is very high. Finally, advertising to consumers does not substitute for advertising directed to physicians.