Do pharmacists buy Bayer?

Informed shoppers and the brand premium

B.J.J.A.M. Bronnenberg, J.-P. Dube, M. Gentzkow, J. Shapiro

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We estimate the effect of information and expertise on consumers’ willingness to pay for national brands in physically homogeneous product categories. In a detailed case study of headache remedies we find that more informed or expert 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 nonchefs. We extend our analysis to cover 50 retail health categories and 241 food and drink categories. The results suggest that misinformation and related consumer mistakes explain 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.
Original languageEnglish
Pages (from-to)1669-1726
JournalQuarterly Journal of Economics
Volume130
Issue number4
DOIs
Publication statusPublished - 2015

Fingerprint

Pharmacists
Premium
National brands
Health
Retail
Willingness-to-pay
Remedies
Chefs
Salt
Food and drink products
Store brands
Expertise
Purchase
Pricing
Drinks
Food
Product category

Keywords

  • branding
  • private label
  • siore brands
  • painkillers

Cite this

Bronnenberg, B.J.J.A.M. ; Dube, J.-P. ; Gentzkow, M. ; Shapiro, J. / Do pharmacists buy Bayer? Informed shoppers and the brand premium. In: Quarterly Journal of Economics. 2015 ; Vol. 130, No. 4. pp. 1669-1726.
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Do pharmacists buy Bayer? Informed shoppers and the brand premium. / Bronnenberg, B.J.J.A.M.; Dube, J.-P.; Gentzkow, M.; Shapiro, J.

In: Quarterly Journal of Economics, Vol. 130, No. 4, 2015, p. 1669-1726.

Research output: Contribution to journalArticleScientificpeer-review

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AU - Shapiro, J.

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AB - We estimate the effect of information and expertise on consumers’ willingness to pay for national brands in physically homogeneous product categories. In a detailed case study of headache remedies we find that more informed or expert consumers are less likely to pay extra to buy national brands, with pharmacistschoosing 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 nonchefs. We extend our analysis to cover 50 retail health categories and 241 food and drink categories. The results suggest that misinformation and related consumer mistakes explain 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.

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