Does DTC Advertising Provide Information or Create Market Power? Evidence from the U.S. and New Zealand

The impact of DTC advertising of prescription drugs on consumers has been the subject of considerable debate worldwide. Proponents of DTC advertising argue that it allows patients to make more informed decisions, helps address under-treatment of some medical conditions, and improves the economic value of health care, among other benefits. In contrast, critics of DTC advertising contend that it leads to consumers paying higher prices, patients potentially being misled about risks and benefits of drugs, and patients pressuring doctors to prescribe drugs. The authors examine this debate in the context of two leading theories on the effects of advertising – the Advertising=Information and Advertising=Market power schools of thought and review empirical studies that have examined the impacts of DTC advertising on consumers. It is found that the research evidence generally favors the Advertising=Information school, which is supportive of the idea that DTC helps patients become more informed and communicate more effectively with their doctors.