Positive Spillovers and Free Riding in Advertising of Prescription Pharmaceuticals: The Case of Antidepressants
57 Pages Posted: 10 Aug 2014 Last revised: 8 Jul 2018
Date Written: June 23, 2016
Exploiting the discontinuity in advertising along the borders of television markets, I estimate that television advertising of prescription antidepressants exhibits significant positive spillovers on rivals' demand. I apply this identification in a demand model, where estimated parameters indicate significant and persistent spillovers driven by market expansion. Using the demand estimates to calibrate a stylized supply model, I explore the consequences of the positive spillovers on firm advertising choice. Compared with a competitive benchmark in which firms optimally free ride, simulations suggest a category-wide advertising cooperative would produce a significant increase in total advertising.
Keywords: Advertising, Spillovers, Pharmaceuticals, DTCA
JEL Classification: L13, M37
Suggested Citation: Suggested Citation