NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium

Bart J. Bronnenberg, Jean-Pierre Dubé, Matthew Gentzkow, Jesse M. Shapiro

NBER Working Paper No. 20295
Issued in July 2014
NBER Program(s):   IO

We estimate the effect of information on consumers' willingness to pay for national brands in physically homogeneous product categories. We measure consumer information using education, occupation, and a survey-based measure of product knowledge. In a detailed case study of headache remedies we find that more informed consumers are less likely to pay extra to buy national brands, with pharmacists choosing them over store brands only 9 percent of the time, compared to 26 percent of the time for the average consumer. In a similar case study of pantry staples such as salt and sugar, we show that chefs devote 12 percentage points less of their purchases to national brands than demographically similar non-chefs. We extend our analysis to cover 50 retail health categories and 241 food and drink categories. The results suggest that misinformation explains a sizable share of the brand premium for health products, and a much smaller share for most food and drink products. We tie our estimates together using a stylized model of demand and pricing under misinformation.

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A data appendix is available at http://www.nber.org/data-appendix/w20295

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20295

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