Ask Your Doctor? Direct-to-Consumer Advertising of Pharmaceuticals

We measure the impact of direct-to-consumer television advertising (DTCA) by drug manufacturers. Our identification strategy exploits shocks to local advertising markets generated by the political advertising cycle and a regulatory intervention affecting a single product. We find evidence of significant business stealing effects among branded, advertised drugs. In addition, we show positive spillovers from drug advertisements to non-advertised competitors in the same class. We decompose the effect and show it is primarily due to new customers. Finally, simulations quantify the magnitude of business stealing and explore heterogeneity in policy effects. JEL classification: I11, L10 ∗The Wharton School, University of Pennsylvania, 3620 Locust Walk, Philadelphia PA 19104 (e-mail: [email protected]; [email protected]). The authors would like to acknowledge the valuable advice and suggestions provided by Jason Abaluck, Patricia Danzon, Liran Einav, Brett Gordon, Wes Hartmann, Gunter Hitsch, JF Houde, Ginger Jin, Marc Meredith, Andrew Sfekas, Brad Shapiro, Ashley Swanson, and Bob Town. We would further like to thank workshop participants at Wharton and Boston College, the Columbia Commuter Strategy Conference, Marketing Dynamics, IIOC, NBER IO, QME, and the Econometric Society for their comments and feedback. Starc gratefully acknowledges funding from the Leonard Davis Institute.