Does Price Reveal Poor-Quality Drugs? Evidence from 17 Countries
Focusing on 8 drug types on the WHO-approved medicine list, we constructed an original dataset of 899 drug samples from 17 low- and median-income countries and tested them for visual appearance, disintegration, and analyzed their ingredients by chromatography and spectrometry. Fifteen percent of the samples fail at least one test and can be considered substandard. After controlling for local factors, we find that failing drugs are priced 13.6-18.7% lower than non-failing drugs but the signaling effect of price is far from complete, especially for non-innovator brands. The look of the pharmacy, as assessed by our covert shoppers, is weakly correlated with the results of quality tests. These findings suggest that consumers are likely to suspect low quality from market price, non-innovator brand and the look of the pharmacy, but none of these signals can perfectly identify substandard and counterfeit drugs. Indeed, many cheaper non-innovator products pass all quality tests, and are genuine generic drugs.
|Date of creation:||Mar 2011|
|Publication status:||Published in the Journal of Health Economics 30 (2011) 1150-1163|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richard G. Frank & David S. Salkever, 1997.
"Generic Entry and the Pricing of Pharmaceuticals,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 6(1), pages 75-90, March.
- Richard G. Frank & David S. Salkever, 1995. "Generic Entry and the Pricing of Pharmaceuticals," NBER Working Papers 5306, National Bureau of Economic Research, Inc.
- Carl Shapiro, 1982. "Consumer Information, Product Quality, and Seller Reputation," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 20-35, Spring.
- Grossman, Gene M & Shapiro, Carl, 1988. "Counterfeit-Product Trade," American Economic Review, American Economic Association, vol. 78(1), pages 59-75, March.
- Grossman, Gene, 1986. "Counterfeit Product Trade," CEPR Discussion Papers 103, C.E.P.R. Discussion Papers.
- Gene M. Grossman & Carl Shapiro, 1986. "Counterfeit-Product Trade," NBER Working Papers 1876, National Bureau of Economic Research, Inc.
- Ginger Zhe Jin & Andrew Kato, 2006. "Price, quality, and reputation: evidence from an online field experiment," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 983-1005, December.
- Gene M. Grossman & Carl Shapiro, 1986. "Foreign Counterfeiting of Status Goods," NBER Working Papers 1915, National Bureau of Economic Research, Inc.
- Danzon, Patricia M. & Chao, Li-Wei, 2000. "Cross-national price differences for pharmaceuticals: how large, and why?," Journal of Health Economics, Elsevier, vol. 19(2), pages 159-195, March.
- Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-641, August.
- Gene M. Grossman & Carl Shapiro, 1988. "Foreign Counterfeiting of Status Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 103(1), pages 79-100.
- Anis, Aslam H. & Wen, Quan, 1998. "Price regulation of pharmaceuticals in Canada," Journal of Health Economics, Elsevier, vol. 17(1), pages 21-38, January.
- John Rizzo & Richard Zeckhauser, 2009. "Generic script share and the price of brand-name drugs: the role of consumer choice," International Journal of Health Economics and Management, Springer, vol. 9(3), pages 291-316, September.
- Rizzo, John & Zeckhauser, Richard Jay, 2012. "Generic Script Share and the Price of Brand-Name Drugs: The Role of Consumer Choice," Scholarly Articles 8057977, Harvard Kennedy School of Government.
- Russell Cooper & Thomas W. Ross, 1984. "Prices, Product Qualities and Asymmetric Information: The Competitive Case," Review of Economic Studies, Oxford University Press, vol. 51(2), pages 197-207.
- Lanjouw, Jean O. & Cockburn, Iain M., 2001. "New Pills for Poor People? Empirical Evidence after GATT," World Development, Elsevier, vol. 29(2), pages 265-289, February.
- Danzon, Patricia M & Chao, Li-Wei, 2000. "Does Regulation Drive out Competition in Pharmaceutical Markets?," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 311-357, October.
- Yi Qian, 2008. "Impacts of Entry by Counterfeiters," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1577-1609.
- Asher Wolinsky, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Oxford University Press, vol. 50(4), pages 647-658.
- George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213-213. Full references (including those not matched with items on IDEAS)