If You’re Not Buying Generic Pain Relievers, You Are Wasting Your Money

Commentary about business and finance.
June 27 2013 12:00 PM

Step Away From the Tylenol

Americans are wasting billions of dollars a year on name-brand pills that professionals avoid.

Commonly used painkiller medicines based on Ibuprofen, an anti-inflammatory drug.
High-income households are much more likely to buy name-brand headache remedies than low-income households

Photo by Jack Guez/AFP/Getty Images

Do you have any Tylenol in your house? Not store-brand acetaminophen pills that you happen to refer to as Tylenol, but the real-deal Tylenol manufactured by Johnson & Johnson? How about Advil or Bayer aspirin? If you’re a doctor, a nurse, or a pharmacist, the answer is probably no. If the answer is yes, you’re wasting your money. And that’s what an awful lot of us are doing, according to intriguing new research from the University of Chicago Business School into the strange economic underworld of pure branding effects.

The novel approach taken by Bart Bronnenberg, Jean-Pierre Dubé, Matthew Gentzkow, and Jesse Shapiro (PDF) was to study the difference in purchasing choices made by people in different occupations or with different levels of knowledge.

They show, for example, that high-income households are much more likely to buy name-brand headache remedies than low-income households. That’s an empirical finding that’s compatible with all kinds of different accounts: Poor people buy cheap stuff all the time while richer people prefer more expensive items, perhaps because they’re superior. The authors show, however, that while physicians have substantially higher average incomes than lawyers, they are also much less likely to buy name-brand headache medicine.

It’s not just physicians. Registered nurses have more modest incomes than doctors, but are shown to be far more likely to buy generic pain relievers than other people with similar incomes. Most strikingly of all, professional pharmacists—the people who know which pills are which—are even less likely to buy name brand than are doctors and nurses.

This all strongly suggests that rich people avoid generics not because the pills are inferior, or even because they’re showing off, but simply because they’re careless. Prosperous people whose occupations give them health care expertise steer clear of expensive brands. Nonoccupational proxies for knowledge indicate the same thing. When you control for income, there’s a clear correlation between educational attainment and preference for generics. Among college graduates, health majors are more likely to buy generics than other science majors, who in turn are more likely to go generic with their headache remedies than engineers. Engineers, meanwhile, buy generics more often than people with nontechnical college degrees. By the same token, willingness to buy generic drugs is strongly correlated with ability to correctly identify the active ingredient in name-brand pills. In total, Americans waste about $32 billion a year in buying name-brand pills over the counter where generic alternatives are readily available.

Interestingly, a similar logic applies—though only partially—to food.

Chefs or head cooks at restaurants are more likely than the general public to buy all kinds of generic products: salt, baking mixes, prepared food, sugar, dried fruit, “dairy spreads and dips,” bread, pickles, soup, and cheese. In an echo of the headache-medicine finding, the authors discovered that chefs opt for generics with what they call pantry staples, where they can readily ascertain that the generic salt or baking soda is the same as the brand-name alternative. (For many other items, including eggs, milk, canned fruits and vegetables, and frozen vegetables, the buying habits of chefs and nonchefs are about the same. And for a select few items, including both carbonated and noncarbonated beverages, yogurt, dough products, and dried grains, chefs are actually less likely than the average person to buy generic.)

One moral of the story (Slate advertisers should pay attention) is that advertising works. Nobody I know thinks advertising works on them or on anyone else. But it’s clear that even when marketers don’t have any meaningful information to convey about why you should buy their product, investments in branding nonetheless move purchasing decisions. A related issue is that you, personally, can do your part to wage war against waste and inefficiency by increasing social awareness of generic alternatives. No longer will I complain about the onerous restrictions placed on the purchase of Sudafed when I could say “pseudoephedrine” instead and promote generic consciousness.

Though the University of Chicago study focused on over-the-counter remedies (painkillers, specifically), branded vs. generic competition exists in other, higher-cost areas of health care. Insurance companies already deploy incentives to encourage consumers to opt for generic prescription drugs, but the public’s baseline level of knowledge of the vast array of prescription pharmaceuticals is much lower than that of over-the-counter pain relievers. Simply forcing hospitals and doctors to use generics where available, rather than having patients waste money on name-brand medicine, is a free lunch.

Meanwhile, in the food realm, we could all learn a thing or two from the chefs. Apparently the people in the know think the rest of us are blowing it by being stingy and avoiding name-brand yogurt and dried grains. I’m not sure what’s wrong with the cheap grains, but that’s precisely the point—capitalism works best when people have information. Nonexperts make a lot of purchasing errors in both directions. So I’m resolving to be the change I want to see in the world. No more wasting money on name brand mass-market cheese, and with the savings I’ll start splurging on name-brand rice. Together, we can beat ignorant consumption!

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