Description:

Speaker: Anastasiia Evdokimova

"Over-the-Counter Drugs Market: Information Distortion In Label Design".

Abstract:
In the over-the-counter (OTC) drug market, labels play a key role in helping customers choose products. Current label design allows drug companies to exert markups by conveying to consumers that some products are more effective than others, even when they're chemically identical. Survey data reveal that information distortion results from consumers' inability to identify drugs with the same effectiveness and suggests that the provision of low-cost information can be welfare-enhancing. This project aims to quantify the loss in the consumer surplus that comes from this misconception and construct a welfare-enhancing label design for OTC drugs. To separately identify unobserved efficacy beliefs from the preferences in the demand model, I collect consumers ' perceptions of drugs ' effectiveness through an experiment and convert them into a quantifiable measure of relative effectiveness through triplet embedding. Preliminary results suggest that the best candidate for the welfare-enhancing design is the label that directly signals to consumers which products have the same effectiveness.