Paper #595

Title:

Quality safeguards and regulation of online pharmacies

Author:

Benito Arruñada

Date:

December 2001 (Revised: March 2003)

Abstract:

Using econometric evidence, this article confirms that distribution of medicines online is split into two market segments of very diverse quality, and identifies the factors that drive quality and quality assurance in this activity. Unlike fraudulent, ‘rogue,’ websites, which offer scant guarantees and usually sell just a few medicines without prescription, online pharmacies offering insurance coverage and linked to conventional pharmacies typically sell a whole range of drugs, require third-party medical prescriptions and provide abundant information to patients. It is shown that, where online pharmacies are allowed to act legally, market forces enhance quality, as private insurers require professional standards, and specialized third parties make a business of certifying them. Furthermore, older online pharmacies and those running conventional operations offer higher quality, probably because of reputational investments. Overall, this evidence supports licensing online pharmacies, especially considering that prohibiting them is ineffective against fraudulent sites.

Keywords:

E-Commerce, pharmacies, regulation, quality assurance

JEL codes:

I11, I18, K23, L15, L84

Area of Research:

Business Economics and Industrial Organization

Published in:

Health Economics, 13 (4), 2004, 329-344

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