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Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium

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  • Bart J. Bronnenberg
  • Jean-Pierre Dubé
  • Matthew Gentzkow
  • Jesse M. Shapiro

Abstract

We estimate the effect of information and expertise on consumers’ willingness to pay for national brands in physically homogeneous product categories. In a detailed case study of headache remedies, we find that more informed or expert consumers are less likely to pay extra to buy national brands, with pharmacists choosing them over store brands only 9 percent of the time, compared to 26 percent of the time for the average consumer. In a similar case study of pantry staples such as salt and sugar, we show that chefs devote 12 percentage points less of their purchases to national brands than demographically similar nonchefs. We extend our analysis to cover 50 retail health categories and 241 food and drink categories. The results suggest that misinformation and related consumer mistakes explain a sizable share of the brand premium for health products, and a much smaller share for most food and drink products. We tie our estimates together using a stylized model of demand and pricing. JEL Codes: D12, D83, L66.

Suggested Citation

  • Bart J. Bronnenberg & Jean-Pierre Dubé & Matthew Gentzkow & Jesse M. Shapiro, 2015. "Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium," The Quarterly Journal of Economics, Oxford University Press, vol. 130(4), pages 1669-1726.
  • Handle: RePEc:oup:qjecon:v:130:y:2015:i:4:p:1669-1726
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Horton, John J. & Zeckhauser, Richard J., 2016. "Owning, Using and Renting: Some Simple Economics of the "Sharing Economy"," Working Paper Series 16-007, Harvard University, John F. Kennedy School of Government.
    2. Tanjim Hossain & Fahad Khalil & Matthew Shum, 2016. "Auctioneers as Market Makers: Managing Momentum in Chittagong Tea Auctions," CESifo Working Paper Series 5843, CESifo Group Munich.
    3. Pasirayi, Simba & Grebitus, Carola, 2016. "The Consumer Paradox: Why Bottom-Tier Consumers Are Loyal To Brand Names," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 236070, Agricultural and Applied Economics Association.
    4. Kaplan, Greg & Schulhofer-Wohl, Sam, 2017. "Inflation at the household level," Journal of Monetary Economics, Elsevier, vol. 91(C), pages 19-38.
    5. Benjamin R. Handel & Jonathan T. Kolstad & Johannes Spinnewijn, 2015. "Information Frictions and Adverse Selection: Policy Interventions in Health Insurance Markets," CESifo Working Paper Series 5623, CESifo Group Munich.
    6. Alberto Cavaliere & Giovanni Crea, 2016. "Vertical Differentiation With Consumers Misperceptions And Information Disparities," DEM Working Papers Series 122, University of Pavia, Department of Economics and Management.
    7. Erin M. Johnson & M. Marit Rehavi, 2016. "Physicians Treating Physicians: Information and Incentives in Childbirth," American Economic Journal: Economic Policy, American Economic Association, vol. 8(1), pages 115-141, February.
    8. Matthew Grennan & Ashley Swanson, 2016. "Transparency and Negotiated Prices: The Value of Information in Hospital-Supplier Bargaining," NBER Working Papers 22039, National Bureau of Economic Research, Inc.
    9. Simon Freyaldenhoven & Christian Hansen & Jesse M. Shapiro, 2018. "Pre-event Trends in the Panel Event-study Design," NBER Working Papers 24565, National Bureau of Economic Research, Inc.
    10. Alberto Cavaliere & Giovanni Crea, 2017. "Vertical Differentiation With Optimistic Misperceptions And Information Disparities," DEM Working Papers Series 137, University of Pavia, Department of Economics and Management.
    11. Xu, Yan, 2017. "Essays on preference formation and home production," Other publications TiSEM b028fd7e-53ba-4ff6-97eb-4, Tilburg University, School of Economics and Management.
    12. Lunn, Pete & Bohacek, Marek & McGowan, Feidhlim, 2016. "The Surplus Identification Task and Limits to Multi-Attribute Consumer Choice," Papers WP536, Economic and Social Research Institute (ESRI).
    13. Justine S. Hastings & Jesse M. Shapiro, 2017. "How Are SNAP Benefits Spent? Evidence from a Retail Panel," NBER Working Papers 23112, National Bureau of Economic Research, Inc.
    14. Xavier Gabaix, 2017. "Behavioral Inattention," NBER Working Papers 24096, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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