In Whom We Trust: The Role of Certification Agencies in Online Drug Markets
NBER Working Paper No. 17955
This paper uses an audit sample and a consumer survey to study the intriguing market of online prescription drugs facing US customers, and assesses the role that certification agencies play in online drug markets.
On the supply side, we acquire samples of five popular brand-name prescription drugs from three types of online pharmacies: tier 1 are US-based and certified by the National Association of Boards of Pharmacy (NABP) or LegitScript.com, tier 2 are certified by PharmacyChecker.com or the Canadian International Pharmacy Association (CIPA) but not by NABP or LegitScript, tier 3 are not certified by any of the four agencies. Most tier 2 and tier 3 websites are foreign. We find that 37 of the 365 delivered samples are different from the products we ordered and therefore non-testable. Conditional on testable samples, Raman spectrometry test finds no failure of authenticity except for 8 Viagra samples from tier-3 websites. After controlling for testability and authenticity, tier 2 websites are 49.2% cheaper (p<0.01) and tier 3 websites are 54.8% cheaper (p<0.01) than tier 1 sites. These differences are driven by non-Viagra drugs. For Viagra, failing samples are cheaper but there is no significant price difference across tiers once we condition on testability and authenticity.
To study the demand side, we designed a survey that was distributed by RxRights. Among the 2,522 respondents who have purchased prescription medication and are concerned about the price of US pharmaceuticals, results show that 61.54% purchase drugs online and mostly from foreign websites, citing cost saving as the leading reason. Conditional on shopping online, 41.11% check with a credentialing agency.
Both samples convey a consistent message that certification agencies deliver useful information for foreign websites and online consumers. Further, while these findings confirm the FDA warning against rogue websites, they do suggest that a blanket ban against all foreign websites may deny consumers substantial savings from certified tier 2 websites.
This paper was revised on July 5, 2013
Document Object Identifier (DOI): 10.3386/w17955
Published: Roger Bate, Ginger Zhe Jin and Aparna Mathur# “In Whom We Trust: the Role of Certification Agencies in Online Drug Markets,” the Berkeley Express Journal of Economic Analysis & Policy, Contribution Tier, Volume 14, Issue 1, Pages 111–150, ISSN (Online) 1935-1682, ISSN (Print) 2194-6108, DOI: 10.1515/bejeap-2013-0085, December 2013. Also available as NBER working paper #17955.
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