Case Study :Deregulating Pharmaceutical Advertising

Direct-to-consumer advertising informs and educates consumers. It lets consumers know their conditions may be treatable, and it informs consumers about the possible risks associated with pharmaceuticals. It helps them ask their doctors and pharmacists better questions. Consumers are not stupid. They understand that we are trying to sell a product and they will balance our sales pitch with information from other sources. Advertising only makes sense for products that really work. If consumers try an advertised product and it doesnt work, we have shot ourselves in the foot. Consumers wont believe our next pitch. Remember, we have $2 billion in sales, so we have a lot to lose if consumers stop trusting our brand. Advertising is informationinformation about products that have been rigorously reviewed for safety and effectiveness. Consumers want to know about drugs with more convenient dosing, reduced side effects, and fewer interactions. Direct-to-consumer advertising helps consumers make better choices because, quite frankly, doctors and pharmacists are not educating the public. Deregulating direct-to-con-sumer advertising would be a progressive step for this country. The vice president for public affairs stopped talking and waited for questions. Thats a very impressive argument, said the senator. But arent firms using advertising to create entry barriers? And dont entry barriers result in higher prices for consumers and their insurance companies? In my view, drug companies are using advertising to differentiate their products and jack up their margins. Furthermore, this strategy seems to be a very haphazard way of educating (and perhaps misinforming) the public. Only drugs with blockbuster potential are going to show up on television, and nobody can afford to promote a cheap, safe, and effec-tive generic product. The drug companies are trying to get consumers to use high-priced branded products, not the inexpensive alternatives. So we wind up spending more without improving the health of the public. The case of Vioxx is instructive. It was heavily promoted, even though it had modest advantages over much less expensive products, and became a $2.5 billion blockbuster. Then we learned Vioxx increased the risks of heart attack and stroke. That was consumer education? I think we should ban direct-to-consumer advertising, not expand it.

Discussion questions:

How could advertising be a barrier to entry?

Could advertising reduce barriers to entry for a new product?

Presumably drug companies are trying to differentiate their products from the competition. Will consumers be better off or worse off if the companies succeed?

Consumers generally favor direct-to-consumer advertising, and healthcare professionals generally oppose it. Does this difference in attitudes make sense?