Comparison Friction: Experimental Evidence from Medicare Drug Plans

Jeffrey Kling, Sendhil Mullainathan, Eldar Shafir, Lee Vermeulen and Marian Wrobel

No 17410, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Consumers need information to compare alternatives for markets to function efficiently. Recognizing this, public policies often pair competition with easy access to comparative information. The implicit assumption is that comparison friction--the wedge between the availability of comparative information and consumers' use of it--is inconsequential because information is readily available and consumers will access this information and make effective choices. We examine the extent of comparison friction in the market for Medicare Part D prescription drug plans in the United States. In a randomized field experiment, an intervention group received a letter with personalized cost information. That information was readily available for free and widely advertised. However, this additional step--providing the information rather than having consumers actively access it--had an impact. Plan switching was 28 percent in the intervention group, versus 17 percent in the comparison group, and the intervention caused an average decline in predicted consumer cost of about $100 per year among letter recipients--roughly 5 percent of the cost in the comparison group. Our results suggest that comparison friction can be large even when the cost of acquiring information is small, and may be relevant for a wide range of public policies that incorporate consumer choice.

JEL-codes: D89 I11 (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-agr and nep-exp
Note: AG EH IO PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Published as Quarterly Journal of Economics, 127:1 (February 2012), 199-235.

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