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The Market for High-Quality Medicine

Daniel Bennett () and Wesley Yin

No 20091, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This study examines the effect of chain store entry on drug quality and prices in the retail pharmacy market in Hyderabad, India. In contrast to prevailing mom-and-pop pharmacies, chains exploit scale economies to offer high-quality drugs at lower cost. With a unique data set and a natural experiment methodology, we show that chain entry leads to a relative 5 percent improvement in drug quality and a 2 percent decrease in prices at incumbent retailers. These changes do not depend on the socioeconomic status of consumers, suggesting that chain entry improves consumer welfare throughout the market. Despite the likely role of asymmetric information in this market, we show that consumers partially infer these quality improvements. Our findings suggest that in markets with asymmetric information, organizational technologies such as chains may play an important role translating greater demand into higher quality.

JEL-codes: I1 L15 O1 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-com, nep-cta and nep-hea
Note: DEV HC
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