Description:

Speaker Anastasiia Evdokimova

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

Abstract: Labels play a vital role in the over-the-counter (OTC) drug market as they help customers choose products that alleviate their symptoms. However, current label design allows drug companies to charge markups by making customers believe that some products are more effective than others, even when they are chemically identical. According to survey data, this practice results in information distortion, making it difficult for customers to identify equally effective drugs. Therefore, providing low-cost information can improve welfare. This project aims to measure the loss of consumer surplus due to misconceptions about efficacy and develop 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 label design that directly indicates which products have the same effectiveness is the best candidate for enhancing welfare.