Advertising and the Price, Quantity, and Quality of Primary Care Physician Services

Abstract

Physician advertising has increased dramatically during the past decade, and this trend seems likely to continue. This paper examines the impact of such advertising on the price, quantity, and quality of primary care physician services. Unlike earlier research on the effect of advertising in the professions, our study attempts to control for possible selection effects. The results suggest that physicians may advertise in order to obtain more desirable (for example, wealthier and less price-sensitive) patients. Consistent with this view, we find that advertising leads to higher price and quality (the latter measured as time spent per patient office visit) and lower total patient visits. Had we not controlled for selection effects, advertising would appear to have lowered the price of physician services significantly. The results of this study suggest that future research on the price effects of advertising should control for potential selection factors.