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

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  • Roger Bate
  • Ginger Zhe Jin
  • Aparna Mathur

Abstract

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.

Suggested Citation

  • Roger Bate & Ginger Zhe Jin & Aparna Mathur, 2012. "Counterfeit or Substandard? Assessing Price and Non-Price Signals of Drug Quality," NBER Working Papers 18073, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18073 Note: IO
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    References listed on IDEAS

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    1. 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.
    2. 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 1328-1346, December.
    3. 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 207-224, April.
    4. 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.
    5. Ginger Zhe Jin & Phillip Leslie, 2009. "Reputational Incentives for Restaurant Hygiene," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 237-267, February.
    6. 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.
    7. Yi Qian, 2008. "Impacts of Entry by Counterfeiters," The Quarterly Journal of Economics, Oxford University Press, vol. 123(4), pages 1577-1609.
    8. Asher Wolinsky, 1983. "Prices as Signals of Product Quality," Review of Economic Studies, Oxford University Press, vol. 50(4), pages 647-658.
    9. Bate, Roger & Jin, Ginger Zhe & Mathur, Aparna, 2011. "Does price reveal poor-quality drugs? Evidence from 17 countries," Journal of Health Economics, Elsevier, vol. 30(6), pages 1150-1163.
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    Cited by:

    1. Bhaskarabhatla, Ajay & Chatterjee, Chirantan, 2017. "The role of physicians in prescribing irrational fixed-dose combination medicines in India," Social Science & Medicine, Elsevier, vol. 174(C), pages 179-187.

    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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