How Do Restrictions on Advertising Affect Consumer Search?
56 Pages Posted: 27 Jan 2010 Last revised: 6 Jun 2016
Date Written: June 1, 2016
Advertising is often criticized for presenting only partial or selective information about products. This criticism is particularly pronounced for health products, where large asymmetries in information may exist between consumers and firms. This paper explores how government restrictions designed to prevent selective advertising affect the types of information to which consumers are exposed. We exploit a natural experiment in the form of an FDA crackdown that prevented pharmaceutical companies from using selectively chosen information in their Internet search ads. Since companies could not adequately document side-effects within the advertising space allowed, they removed their ads. Our results suggest that, after the ads were removed, consumers were more likely to seek information from websites based on user-generated content or websites that focused on medical treatments not regulated by the FDA, such as Canadian pharmacies and sites promoting herbal remedies.
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