Generic Aversion and Observational Learning in the Over-the-Counter Drug Market

Abstract

Through a labeling intervention at a national retailer, we test three hypotheses for consumer aversion to generic over-the-counter drugs: lack of information on the comparability of generic and brand drugs, inattention to their price differences, and uncertainty about generic quality that can be reduced with information on peer purchase rates. With a difference-in-differences strategy, we find that posted information on the purchases of other customers increases generic purchase shares significantly, while other treatments have mixed results. Consumers without prior generic purchases appear particularly responsive to this information. These findings have policy implications for promoting evidence-based, cost-effective choices. (JEL D12, D83, L65, L81, M37)