Pricing certainty: Experimental evidence on consumer trade-offs between drug quality and cost

Lena Merkel, Fadima Bocoum and Renate Hartwig

No 1181, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: Are consumers willing to trade-off verified drug quality against higher prices in markets where substandard and falsified antibiotics are common? We answer this using a randomized online survey experiment in Nigeria. The design elicits indifference curves between the price and the verified quality in a hypothetical quality-enhancing program. Respondents place substantial value on verifiable quality gains and, on average, accept modest price increases. Keeping quality constant, higher prices are also associated with greater perceived program success. This is consistent with the price operating as a (noisy) quality signal in a low-verification environment. We replicate the experiment in Kenya. Kenyan respondents value quality, but show weak response to price. Our results suggest that the sensitivity to consumer prices and the informative value of prices is context-dependent, limiting the generalizability of market-based mechanisms in different institutional settings. Policy implications are immediate: financing quality assurance partly through prices may be feasible in Nigeria if quality improvements are credible and visible to consumers, but similar strategies may not work in Kenya.

Keywords: Price Premium; Consumer Preferences; Ex Ante Policy Design; Price-quality Trade-off; Substandard and Falsified Medicine (search for similar items in EconPapers)
JEL-codes: D12 D82 I15 I18 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-exp
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:331881

DOI: 10.4419/96973366

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