Description:

Speaker: Ana Evdokimova

Title: "Over-the-Counter Drugs Market: Information Distortion And Optimal Label Design"

Abstract:
In the Over-the-Counter pharmaceutical market, consumers rely on labels to find the appropriate medication for their symptoms. Evidence suggests that companies exploit labeling to exert markups: they market biologically equivalent drugs under multiple labels, adopt mixed-price strategies that market segmentation cannot explain and resort to similar in terms of symptomatology labels for products with different active components content. The aim of this project is to construct an optimal label design that corrects current distorted purchasing patterns resulting from the misconception about drug efficacy. Under information distortion, the standard demand model does not capture true substitution patterns by biasing up the importance of the symptom label and biasing down all other factors of choice. To account for this, I develop a demand model that separates drug preferences from beliefs about drug effectiveness. Since a new label design decreases information distortion by increasing substitution between labels, to account for changes in market equilibrium, I construct a supply model that translates rich heterogeneity in the brand/label substitution patterns into a mix-price strategy. To identify unobserved efficacy beliefs for both the initial model and each change in the label design, I will collect consumers’ perceptions of drugs’ effectiveness and convert them into a quantifiable measure of relative effectiveness through elliptical triple embedding.