Banning Foreign Pharmacies from Sponsored Search: The Online Consumer Response

Matthew Chesnes, Weijia (Daisy) Dai, Ginger Zhe Jin

NBER Working Paper No. 20088
Issued in May 2014, Revised in August 2015
NBER Program(s):Industrial Organization

Increased competition from the Internet has raised concerns for the quality of online prescription drugs. Given the illegality of importing unapproved prescription drugs into the U.S. and the pressure from the Department of Justice, Google agreed to ban pharmacies non-certified by the National Association of Boards of Pharmacy (NABP) from sponsored search listings. We study how the ban on non-NABP-certified pharmacies from sponsored search affects consumer search on the Internet. Using click-through data from comScore, we find that non-NABP-certified pharmacies receive fewer clicks after the ban, and this effect is heterogeneous. In particular, pharmacies not certified by the NABP, but certified by other sources (other-certified sites), experience a reduction in total clicks, and some of their lost paid clicks are replaced by organic clicks. In contrast, pharmacies not certified by any of the four major certification agencies suffer a greater reduction in both paid and organic clicks. These results suggest that the ban has increased the search cost for other-certified sites, but at least some consumers overcome the search cost by switching from paid to organic links. In addition to search cost, the ban may have increased concerns for uncertified sites and discouraged consumers from reaching them via both paid and organic links.

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Document Object Identifier (DOI): 10.3386/w20088

Published: Matthew Chesnes & Weijia (Daisy) Dai & Ginger Zhe Jin, 2017. "Banning Foreign Pharmacies from Sponsored Search: The Online Consumer Response," Marketing Science, vol 36(6), pages 879-907.

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