What Explains the Use of Direct-to-Consumer Advertising of Prescription Drugs?

Following the clarification of advertising regulation in 1997, direct-to-consumer advertising (DTCA) of prescription drugs has skyrocketed in the U.S., creating a controversy over the role of DTCA. Little is known, however, regarding what affects firms' advertising decisions and which drugs have been advertised to consumers. Using brand-level advertising data, I examine the determinants of DTCA of prescription drugs. I find that drugs that are new, of high quality, and for under-treated diseases are more frequently advertised. Furthermore, advertising outlays decrease with competition. These results complement the demand-side evidence that DTCA has a market-expanding effect but little business-stealing effect.