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DIRECT-TO-CONSUMER Rx DRUG ADVERTISING DOES NOT NECESSARILY IMPLY HIGHER PRICES AND COULD LEAD TO DECREASES, FTC ECONOMIST TELLS DIA ANNUAL MEETING

Executive Summary

Direct-to-consumer advertising for prescription drugs does not necessarily presage higher prices and might even result in decreases, Federal Trade Commission economist Alison Masson suggested at the Drug Information Association's annual meeting July 13. Acknowledging a need for "more facts," the FTCer maintained that the increased competition engendered by Rx drug advertising is likely to translate into such benefits for consumers as lower prices. "I think advertising will lead to lower [drug] costs, not higher prices," she said. While "the economic theory alone doesn't give us an answer as to whether costly advertising will lead to higher prices . . . there is some indirect evidence that suggests prices will fall." At FTC, Masson worked on a 1985 report on generic substitution and pricing. She has also previously written for The New England Journal of Medicine on direct-to-consumer advertising. Pointing to brand advertising as an example, Masson said that "what happens is that advertising reveals the substitutability of products previously though to be very different; and so, consumers would then pay more attention to comparisons, including a comparison of price. This greater sensitivity to product comparisons, including price, means that sellers are not as insulated from one another as they were before and they have to pay greater attention to competitive pressures than they did before, in order to sell to new customers and keep old customers." The argument that advertising will cause higher prices, Masson said, "is simply that it is expensive, and those costs will be passed on to consumers. But that logic only holds in very specific circumstances . . . That's a picture of a firm that doesn't have any price-setting discretion, so that prices are held right down to unit costs . . . But most firms are not in that position and they have some price-setting discretion." Masson also argued that direct-to-consumer advertising will provide consumers with valuable information about symptoms that may help in revealing previously undiagnosed health problems. She further suggested that the current "effective prohibition" on brand-specific advertising "diminishes the incentive" to advertise, because of the "free rider problem" where "second, third, fourth or lower" ranked competitors in a market are content to coast on advertising sponsored by the market leader. The need for more information on the impact of direct-to-consumer advertising was also addressed at the meeting by FDA Drug Advertising and Labeling Division Acting Director Louis Morris. "The debate over direct-to-consumer advertising has an inherent appeal to the bureaucrat because all of the options are left open," Morris pointed out. "The only thing that's missing from the debate is any valid information," he said. "In the words of a former colleague of mine, 'the debate over direct-to-consumer advertising is remarkably data-free.'" Addressing the Prescription Drug Advertising Coalition's plans to conduct extensive research on the impact of the advertising practice (see preceding story), Morris said: "I think the consortium has the potential to take this long-term perspective. By pooling resources, they can undertake the costly long-term research that is essential for public policy decision-making." However, he added, "designing acceptable research that will be objective, well focused [and] methodologically rigorous, will not be an easy task. I believe the consortium has much work ahead of itself, not only in the methodological sense, but in the sense that will satisfy the critics of direct-to-consumer research that they will not use the data to their best interest."

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