Wednesday, September 10, 2014

Brand names and informed consumers--pharmacists seem to like generic drugs

Here's an illuminating look at the economics of brands, as in brand-name products, when there are close substitutes available.

"Do Pharmacists Buy Bayer? Sophisticated Shoppers and the Brand Premium" 
Chicago Booth Research Paper No. 14-17

We estimate the effect of information on consumers’ willingness to pay for branded goods in physically homogeneous consumer packaged goods categories. In a case study of headache remedies, we find that college education, working in a healthcare occupation, and other proxies for product knowledge predict more purchases of private labels relative to brands. Pharmacists devote almost 90 percent of headache remedy purchases to private labels, against 71 percent for the average consumer. The effect of knowledge is similar across a broad set of health products, and in a set of relatively homogeneous food products, but smaller for food and drink products overall. We conclude that a significant share of the willingness to pay for brands in these categories would disappear in a world where consumers were fully informed.

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