The welfare implications of direct-to-consumer advertising (DTCA) have garnered considerable attention and are complicated since the consumer delegates some decision-making authority to the physician, who is exposed to advertising as well. In this paper, I develop and estimate a structural model that explains the demand side behavior in the market for prescription drugs. I then use the estimated parameters of the model to compute the impact on consumer welfare that results from changes in demand for cholesterol-reducing drugs due to increased expenditure in DTCA. The results of the policy analysis indicate increased levels of consumer welfare due to presence of DTCA in comparison to the absence of DTCA. The results also support the argument that DTCA helps bring under-diagnosed patients to the physicians' offices. Furthermore, the results of the estimation support the informative role of DTCA on the decision to seek care, and both informative and persuasive roles of physician advertising on the choice of the drug.

Original languageEnglish
Pages (from-to)164-180
Number of pages17
JournalInternational Journal of Industrial Organization
Issue number2
StatePublished - Mar 2013

Bibliographical note

Funding Information:
I would like to thank Simon Anderson and John Pepper for their invaluable support and guidance on this research. I thank David Mills, Leora Friedberg, Keith Brand, and Richard Lindrooth for their helpful comments and support on earlier drafts. I would also like to thank participants in various seminars and conferences, and especially, Pat Bajari and several anonymous referees for their helpful comments and suggestions. I am grateful to John Kennedy, Eric Yaker and IMS Health for making the advertising and sales data available for this research. I gratefully acknowledge the financial support provided by the Bankard Fund for Political Economy at the University of Virginia. The Bankard Fund did not play any role in designing the research project, or collecting, analyzing or interpreting the data, or taking part in any of the steps associated with completing this research project other than by providing the financial support. I am responsible for all the remaining errors.


  • Direct-to-consumer advertising
  • Physician advertising
  • Prescription drugs
  • Structural model
  • Welfare

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering


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