Jesse Shapiro, Matthew Gentzkow, Jean-Pierre Dubé, and Bart J. Bronneberg have an amazingly comprehensive paper (PDF) on the question of who buys Advil/Tylenol pills when you could buy cheaper generic ibuprofen/acetaminophen (or, as they say in Europe, “paracetamol”) pills.
Somewhat unfortunately, the answers are not that surprising. For example, poor people are thrifty and rich people waste money:
Conversely, people who can correctly identify the active ingredients in name brand pills are less likely to waste money:
And better-educated people make more-informed decisions, though this is somewhat undercut by the fact that better-educated people have more money:
This isn’t exactly earth-shattering stuff, but it’s an important real world illustration of the fact that not only to actual product markets lack perfect information but this makes a real difference. It seems like the name-brand headache remedy industry shouldn’t exist, and it seems that if people were better-informed it wouldn’t exist. Sales of branded Advil are based on a mixture of people not knowing what the ingredients are and not bothering to check the prices.
