IN WHOM WE TRUST: NATIONAL BUREAU OF ECONOMIC …

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IN WHOM WE TRUST: THE ROLE OF CERTIFICATION AGENCIES IN ONLINE DRUG MARKETS

Roger Bate Ginger Zhe Jin Aparna Mathur

Working Paper 17955

NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 March 2012

The Searle Freedom Trust provided funding for the initial collection and spectrometry assessment, the Legatum Institute funded the second collection of medicines and spectrometry and a grant from the Social Sciences and Humanities Research Council of Canada provided subsequent funding to cover analysis of survey results. Kimberley Hess, Robert Brush and Lorraine Mooney assisted with spectrometry analysis, NABP and Pharmacychecker provided valuable information, and Julissa Milligan, Matt Jensen, Justin Huang and Ben Zou provided excellent research assistance. Frank Pleticha, Lee Graczyk and Melissa Maki assisted with survey design and implementation. A previous version was circulated under the title "Unveiling the Mystery of Online Pharmacies: an Audit Study." All errors are ours. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

? 2012 by Roger Bate, Ginger Zhe Jin, and Aparna Mathur. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including ? notice, is given to the source.

In Whom We Trust: The Role of Certification Agencies in Online Drug Markets Roger Bate, Ginger Zhe Jin, and Aparna Mathur NBER Working Paper No. 17955 March 2012, Revised January 2013, Revised July 2013 JEL No. D18,D8,I18

ABSTRACT

This paper uses an audit sample and a consumer survey to study the intriguing market of online prescription drugs facing US customers, and assesses the role that certification agencies play in online drug markets.

On the supply side, we acquire samples of five popular brand-name prescription drugs from three types of online pharmacies: tier 1 are US-based and certified by the National Association of Boards of Pharmacy (NABP) or , tier 2 are certified by or the Canadian International Pharmacy Association (CIPA) but not by NABP or LegitScript, tier 3 are not certified by any of the four agencies. Most tier 2 and tier 3 websites are foreign. We find that 37 of the 365 delivered samples are different from the products we ordered and therefore non-testable. Conditional on testable samples, Raman spectrometry test finds no failure of authenticity except for 8 Viagra samples from tier-3 websites. After controlling for testability and authenticity, tier 2 websites are 49.2% cheaper (p ................
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