Why drug companies benefit when competitors advertise
TV commercials for branded medication boost demand for rivals
- When a pharmaceutical company increases advertising for a drug, firms that sell rival medications tend to advertise less, acting like free riders, according to Chicago Booth’s Bradley Shapiro. That’s because drug ads on television increase sales not only for the promoted brand but also for those of competitors.
- US regulators require prescription drug ads to explain an ailment, as well as the drug’s method of treating it and the drug’s side effects—characteristics typically shared by drugs that treat the same condition. A viewer often identifies with the general health issue, increasing demand for a type of medication but not necessarily a specific brand.
- A consumer interested in a certain brand of drug must first see a doctor to obtain a prescription, which is another way drug ads can affect sales of other brands. While an ad could prompt a doctor’s visit, the doctor ultimately decides which brand to prescribe.
- In the case of antidepressants, Shapiro finds that while an ad campaign for Prozac, for example, increases market share of Prozac in the short run, this effect diminishes quickly (see chart). Nevertheless, in the long run, the overall market for antidepressants expands.