Healthy Skepticism Library item: 3080

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: Journal Article

Leffler KB.
Persuasion or information? The economics of prescription drug advertising
Journal of Law and Economics 1981; 24:45-74

Abstract:

Legislation limiting the promotional activities of pharmaceutical firms is frequently proposed to correct alledged inefficiencies attending the market for drugs. Certainly, low cost elimination of fraudulent and misleading advertising is beneficial. Current regulatory controls have, however, accomplished this goal. Hence, evaluation of expanded advertising controls requires a thorough economic understanding of the functions and effects of nonfraudulent advertising. Such evaluation is most difficult since the economic literature on this issue is in its infancy. The most commonly cited advertising inefficiency rests on entry-barrier effects, yet the link between advertising and entry incentives has not been theoretically established and is generally conceded to be ambiguous. Confounding the issue, barriers to entry can themselves be socially beneficial (for example, patents). Even more troubling, the discussion shows that advertising can improve welfare even if it does not provide information and does retard entry. Thus, substitution of habit for search by physicians can ultimately benefit the patients. Economic analysis of advertising does not, therefore, provide a priori support for limitations on the promotional activities of pharmaceutical firms. The empirical results presented here show that product promotion has a significant positive effect on the entry success of therapeutically important new drugs. Given the large potential social benefits from the more rapid adoption of superior drug therapies, restrictions on pharmaceutical promotion appear to risk large losses in consumer welfare for the promise of unproven and perhaps nonexistent gains.

Keywords:
*analysis/*mathematical modeling/United States/regulation of promotion/Food and Drug Administration/FDA/Federal Trade Commission/ competitive consequences of promotion/value of promotion/quality of information/promotion costs and volume/INFLUENCE OF PROMOTION: MARKET SHARE/REGULATION, CODES, GUIDELINES: DIRECT GOVERNMENT REGULATION/VOLUME OF AND EXPENDITURE ON PROMOTION