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In Whom We Trust: The Role of Certification Agencies in Online Drug Markets

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  • Roger Bate
  • Ginger Zhe Jin
  • Aparna Mathur

Abstract

This paper uses an audit sample and a consumer survey to study the intriguing market of online prescription drugs facing US customers, and assesses the role that certification agencies play in online drug markets. On the supply side, we acquire samples of five popular brand-name prescription drugs from three types of online pharmacies: tier 1 are US-based and certified by the National Association of Boards of Pharmacy (NABP) or LegitScript.com, tier 2 are certified by PharmacyChecker.com or the Canadian International Pharmacy Association (CIPA) but not by NABP or LegitScript, tier 3 are not certified by any of the four agencies. Most tier 2 and tier 3 websites are foreign. We find that 37 of the 365 delivered samples are different from the products we ordered and therefore non-testable. Conditional on testable samples, Raman spectrometry test finds no failure of authenticity except for 8 Viagra samples from tier-3 websites. After controlling for testability and authenticity, tier 2 websites are 49.2% cheaper (p

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17955.

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Date of creation: Mar 2012
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Publication status: published as Roger Bate, Ginger Zhe Jin and Aparna Mathur# β€œIn Whom We Trust: the Role of Certification Agencies in Online Drug Markets,” the Berkeley Express Journal of Economic Analysis & Policy, Contribution Tier, Volume 14, Issue 1, Pages 111–150, ISSN (Online) 1935-1682, ISSN (Print) 2194-6108, DOI: 10.1515/bejeap-2013-0085, December 2013. Also available as NBER working paper #17955.
Handle: RePEc:nbr:nberwo:17955

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  1. Roger Bate & Ginger Zhe Jin & Aparna Mathur, 2011. "Does Price Reveal Poor-Quality Drugs? Evidence from 17 Countries," NBER Working Papers 16854, National Bureau of Economic Research, Inc.
  2. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion in the Small and in the Large: Evidence from an Internet Price Comparison Site," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2004-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  3. Sanjeev Dewan & Vernon Hsu, 2004. "Adverse Selection In Electronic Markets: Evidence From Online Stamp Auctions," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 52(4), pages 497-516, December.
  4. Bradley S. Wimmer & Brian Chezum, 2003. "An Empirical Examination of Quality Certification in a "Lemons Market"," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 41(2), pages 279-291, April.
  5. Paul R. Milgrom, 1979. "Good Nevs and Bad News: Representation Theorems and Applications," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Cantor, Richard & Packer, Frank, 1997. "Differences of opinion and selection bias in the credit rating industry," Journal of Banking & Finance, Elsevier, Elsevier, vol. 21(10), pages 1395-1417, October.
  7. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 24(3), pages 461-83, December.
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Cited by:
  1. Matthew Chesnes & Weijia (Daisy) Dai & Ginger Zhe Jin, 2014. "Banning Foreign Pharmacies from Sponsored Search: The Online Consumer Response," NBER Working Papers 20088, National Bureau of Economic Research, Inc.

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