Can Good Products Drive Out Bad? A Randomized Intervention in the Antimalarial Medicine Market in Uganda

• How can quality be improved in markets in developing countries, which are known to be plagued bysubstandard and counterfeit (“fake”, in short) products? We study the market for antimalarial drugsin Uganda, where we randomly assign entry of a retailer (non-governmental organization (NGO))providing a superior product—an authentic drug priced below the market—and investigate howincumbent firms and consumers respond. We find that the presence of the NGO had economicallyimportant effects. Approximately one year after the new market actor entered, the share of incumbentfirms selling fake drugs dropped by more than 50% in the intervention villages, with higher qualitydrugs sold at significantly lower prices. Household survey evidence further shows that the qualityimprovements were accompanied by consumers expecting fewer fake drugs sold by drug stores. Theintervention increased use of the antimalarial drugs overall. The results are consistent with a simplemodel where the presence of a seller committed to high quality, as opposed to an average firm,strengthens reputational incentives for competing firms to improve quality in order to not be forcedout of the market, leading to “good driving out bad”.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

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