Comparison Friction: Experimental Evidence from Medicare Drug Plans
Consumers 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.
|Date of creation:||Sep 2011|
|Publication status:||published as Quarterly Journal of Economics, 127:1 (February 2012), 199-235.|
|Note:||AG HC HE IO PE|
|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.:
- Jason Abaluck & Jonathan Gruber, 2011. "Choice Inconsistencies among the Elderly: Evidence from Plan Choice in the Medicare Part D Program," American Economic Review, American Economic Association, vol. 101(4), pages 1180-1210, June.
- Claudio Lucarelli & Jeffrey Prince & Kosali Simon, 2012.
"The Welfare Impact Of Reducing Choice In Medicare Part D: A Comparison Of Two Regulation Strategies,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1155-1177, November.
- Claudio Lucarelli & Jeffrey Prince & Kosali Simon, 2008. "The Welfare Impact of Reducing Choice in Medicare Part D: A Comparison of Two Regulation Strategies," NBER Working Papers 14296, National Bureau of Economic Research, Inc.
- Claudio Lucarelli & Jeffrey T. Prince & Kosali Simon, 2009. "The Welfare Impact of Reducing Choice in Medicare Part D: A Comparison of Two Regulation Strategies," Working Papers 2010-14, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
- Jonathan D. Ketcham & Claudio Lucarelli & Eugenio J. Miravete & M. Christopher Roebuck, 2012. "Sinking, Swimming, or Learning to Swim in Medicare Part D," American Economic Review, American Economic Association, vol. 102(6), pages 2639-2673, October.
- Ketcham, Jonathan D. & Lucarelli, Claudio & Miravete, Eugenio J & Roebuck, M Christopher, 2011. "Sinking, Swimming, or Learning to Swim in Medicare Part D," CEPR Discussion Papers 8585, C.E.P.R. Discussion Papers.
- Heiss, Florian & McFadden, Daniel L. & Winter, Joachim, 2006. "Who failed to enroll in Medicare Part D, and why? Early results," Munich Reprints in Economics 19427, University of Munich, Department of Economics.
- Erik Brynjolfsson & Michael D. Smith, 2000. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Management Science, INFORMS, vol. 46(4), pages 563-585, April.
- Michael Smith & Erik Brynjolfsson, 1999. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Computing in Economics and Finance 1999 1022, Society for Computational Economics.
- Jeffrey R. Brown & Austan Goolsbee, 2002. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 481-507, June.
- Brown, Jeffrey, 2000. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Working Paper Series rwp00-007, Harvard University, John F. Kennedy School of Government.
- Dana P. Goldman & Geoffrey F. Joyce & William B. Vogt, 2011. "Part D Formulary and Benefit Design as a Risk-Steering Mechanism," American Economic Review, American Economic Association, vol. 101(3), pages 382-386, May.
- Fiona Scott Morton & Florian Zettelmeyer & Jorge Silva-Risso, 2001. "Internet Car Retailing," NBER Chapters, in: E-commerce, pages 501-519 National Bureau of Economic Research, Inc.
- Florian Heiss & Daniel McFadden & Joachim Winter, 2010. "Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans," NBER Chapters, in: Research Findings in the Economics of Aging, pages 413-481 National Bureau of Economic Research, Inc.
- Florian Heiss & Daniel McFadden & Joachim Winter, 2007. "Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans," NBER Working Papers 13627, National Bureau of Economic Research, Inc.
- Morton, Fiona Scott & Zettelmeyer, Florian & Silva-Risso, Jorge, 2001. "Internet Car Retailing," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 501-519, December.
- Shlomo Benartzi & Richard H. Thaler, 2002. "How Much Is Investor Autonomy Worth?," Journal of Finance, American Finance Association, vol. 57(4), pages 1593-1616, 08.
- Amy Finkelstein, 2010. "Comment on "Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans"," NBER Chapters, in: Research Findings in the Economics of Aging, pages 481-484 National Bureau of Economic Research, Inc.
- David Weil & Archon Fung & Mary Graham & Elena Fagotto, 2006. "The effectiveness of regulatory disclosure policies," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 25(1), pages 155-181. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:17410. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.