For four weeks, labels were posted beneath the price tags of generic products in treated drug classes in treated stores. The content of the labels differed across three experimental arms.
Test 1. To test the hypothesis that consumers lack basic information on brand/generic drug comparability, we created labels that described the similarity between brand and generic products as specifically as possible. The strongest statement we used was: “The FDA determined this product to be therapeutically equivalent and bioequivalent to [corresponding brand product],” taken verbatim from the FDA approval letter, for drugs with such approval letters available on the FDA website. The second statement used was “This product contains the same active ingredient as [corresponding brand product] and has been approved by the FDA,” shown with the reference number and date of FDA approval. This label appeared on products for which we found notices of FDA approval, but either no electronically available letter, or a letter that did not include any statement about bioequivalence. The third statement, which was posted for older-generation drugs whose manufacturers need not seek explicit approval from the FDA prior to marketing a generic, was “This product contains the same active ingredient as [corresponding brand product].”
Test 2a. To test for inattention to price differences, we posted labels stating “Customers who choose this product save X%” with a footnote specifying that the savings was relative to the specified brand product per dose. X ranged from 14% to 68% in the products labeled.
Test 2b. In another store, we highlighted the price differences in a different way, by stating “Customers who choose [corresponding brand product] pay Y% more than the generic alternative.” In this type of label, the price difference is framed as a loss rather than a gain. Also, for the same brand and generic prices, Y will be a larger number than X, because the generic price is a smaller denominator. For these reasons, we hypothesized that Test 2b would have a stronger effect than Test 2a. Note, however, that the label was placed below the generic product, as we were not permitted to place labels below branded products.
Test 3a. To test for observational learning, we posted labels stating “X% of customers in this store choose this product instead of [corresponding brand product].” The values of this share were calculated for each product and each store, using either the previous year’s sales data (Jan-Dec 2011) or the first three months of the current year (Jan-March 2012). To obtain quasi-exogenous variation in the value of the share displayed, holding constant the product and the store, we alternated which method of calculation was used in each store’s labels, each week.
Test 3b. An alternate way to frame the information displayed in Test 3a is to report the share of customers who buy the brand product, e.g. “Y% of customers in this store choose [corresponding brand product]” instead of this product.” If the mere act of bringing attention to the purchase of a specific product leads consumers to buy it, or if the statement is read as an implicit endorsement of a particular product, then Test 3b could have a different effect than Test 3a. If, instead, both labels only affect purchases insofar as they shift customers’ beliefs about what others buy, then Tests 3a and 3b should have the same effect on consumer purchases.