Banning Foreign Pharmacies from Sponsored Search: The Online Consumer Response

77 Pages Posted: 6 May 2014 Last revised: 23 May 2021

See all articles by Matthew Chesnes

Matthew Chesnes

Federal Trade Commission; Johns Hopkins University

Daisy Dai

Lehigh University

Ginger Zhe Jin

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2014

Abstract

Increased competition from the internet has raised concerns about the quality of prescription drugs sold online. Given the pressure from the Department of Justice, Google agreed to ban pharmacies not certified by the National Association of Boards of Pharmacy (NABP) from sponsored search listings. Using comScore click-through data originated from health-related queries, we study how the ban affects consumer search and click behavior in a difference-in-differences framework using the synthetic control method. We find that non-NABP-certified pharmacies receive fewer clicks after the ban and this effect is heterogeneous. In particular, pharmacies not certified by the NABP, but certified by other sources (other-certified websites), experience an increase in organic clicks that partially offsets the loss in paid clicks after the ban. In contrast, pharmacies not certified by any certification agencies experience much lower rates of substitution in organic clicks. These results suggest that the ban has increased the search cost for other-certified websites, but at least some consumers overcome the search cost by switching from sponsored to organic links. The lower substitution for uncertified websites may be explained by the rising consumer concerns about the quality of drugs sold on uncertified websites after the ban.

Suggested Citation

Chesnes, Matthew William and Dai, Daisy and Jin, Ginger Zhe, Banning Foreign Pharmacies from Sponsored Search: The Online Consumer Response (May 2014). NBER Working Paper No. w20088, Available at SSRN: https://ssrn.com/abstract=2432831

Matthew William Chesnes (Contact Author)

Federal Trade Commission ( email )

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Johns Hopkins University ( email )

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Daisy Dai

Lehigh University ( email )

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Ginger Zhe Jin

University of Maryland - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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