Comparison Friction: Experimental Evidence from Medicare Drug Plans
AbstractConsumers need information to compare alternatives for markets to function efficiently. Recognizing this, public policies often pair competition with easy access to comparative information. The implicit assumption is that comparison friction—the wedge between the availability of comparative information and consumers’ use of it—is inconsequential because information is readily available and consumers will access this information and make effective choices. We examine the extent of comparison friction in the market for Medicare Part D prescription drug plans in the United States. In a randomized field experiment, an intervention group received a letter with personalized cost information. That information was readily available for free and widely advertised. However, this additional step—providing the information rather than having consumers actively access it—had an impact. Plan switching was 28 percent in the intervention group, versus 17 percent in the comparison group, and the intervention caused an average decline in predicted consumer cost of about $100 per year among letter recipients—roughly 5 percent of the cost in the comparison group. Our results suggest that comparison friction can be large even when the cost of acquiring information is small, and may be relevant for a wide range of public policies that incorporate consumer choice.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17410.
Date of creation: Sep 2011
Date of revision:
Publication status: published as Quarterly Journal of Economics, 127:1 (February 2012), 199-235.
Note: AG HC HE IO PE
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Other versions of this item:
- Jeffrey R. Kling & Sendhil Mullainathan & Eldar Shafir & Lee C. Vermeulen & Marian V. Wrobel, 2012. "Comparison Friction: Experimental Evidence from Medicare Drug Plans," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 199-235.
- Jeffrey R. Kling & Sendhil Mullainathan & Eldar Shafir & Lee C. Vermeulen & Marian V. Wrobel, 2012. "Comparison Friction: Experimental Evidence from Medicare Drug Plans," Mathematica Policy Research Reports, Mathematica Policy Research 7375, Mathematica Policy Research.
- D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
This paper has been announced in the following NEP Reports:
- NEP-AGR-2011-09-16 (Agricultural Economics)
- NEP-ALL-2011-09-16 (All new papers)
- NEP-EXP-2011-09-16 (Experimental Economics)
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