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Counterfeit or Substandard? Assessing Price and Non-Price Signals of Drug Quality

  • Roger Bate
  • Ginger Zhe Jin
  • Aparna Mathur

Pharmaceutical products can be of poor quality either because they contain zero correct active ingredient (referred to as "counterfeit") or because they contain a non-zero but incorrect amount of the right active ingredient (referred to as "substandard"). While both types of poor-quality drugs can be dangerous, they differ in health consequence, price, and potential policy remedies. Assessing basic quality of 1437 samples of Ciprofloxacin from 18 low-to-middle-income countries, we aim to understand how price and non-price signals can help distinguish counterfeits, substandard drugs, and passing drugs. Following the Global Pharma Health Fund e.V. Minilab® protocol, we find 9.88% of samples have less than 80% of the correct active ingredient and 41.5% of these failures are counterfeits. Both product registration and chain affiliation of retailers are strong indicators of higher probability to pass in the Minilab test and higher retail price. Within quality failures, chain affiliation is more likely to indicate substandard while product registration with local government is more likely to indicate counterfeit. This suggests that registered products are more likely to be targeted by counterfeiters. Furthermore, substandard drugs are priced much lower than comparable generics in the same city but counterfeits offer almost no discount from the targeted genuine version. These findings are consistent with economic theory, and have important implications for both consumers and policy makers.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18073.

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Date of creation: May 2012
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Publication status: published as Roger Bate, Ginger Zhe Jin and Aparna Mathur# “Falsified or Substandard? Assessing Price and Non-Price Signals of Drug Quality” forthcoming the Journal of Economics & Management Strategy, also available as NBER working paper #18073.
Handle: RePEc:nbr:nberwo:18073
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  1. Wolinsky, Asher, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 647-58, October.
  2. 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.
  3. Michael J. Mazzeo, 2004. "Retail Contracting and Organizational Form: Alternatives to Chain Affiliation in the Motel Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 599-615, December.
  4. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
  5. 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 615-41, August.
  6. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-46, December.
  7. Yi Qian, 2008. "Impacts of Entry by Counterfeiters," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1577-1609, November.
  8. Christopher Fitzpatrick & Katherine Floyd, 2012. "A Systematic Review of the Cost and Cost Effectiveness of Treatment for Multidrug-Resistant Tuberculosis," PharmacoEconomics, Springer Healthcare | Adis, vol. 30(1), pages 63-80.
  9. Ginger Zhe Jin & Phillip Leslie, 2009. "Reputational Incentives for Restaurant Hygiene," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 237-67, February.
  10. Png, I P L & Reitman, David, 1995. "Why Are Some Products Branded and Others Not?," Journal of Law and Economics, University of Chicago Press, vol. 38(1), pages 207-24, April.
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