“How to Save $1 Billion Without Even Trying:” The Economics of Generics

The most recent episode of the Freakonomics podcast was titled, “How to Save $1 Billion Without Even Trying.”  It discusses how consumers can save by purchasing generic, as opposed to name brand, products.  The podcast discusses generic medications in particular and is, therefore, relevant to debates about healthcare.

Here is a description of the podcast from the Freakonomics website:

When a pharmacist gets a headache, what do you think she’ll buy: Bayer aspirin or the much cheaper store brand? You’ll find out on this week’s episode. Hint: the episode is called “How to Save $1 Billion Without Even Trying.” (You can subscribe to the podcast at iTunes, get the RSS feed, or listen via the media player above. You can also read the transcript; it includes credits for the music you’ll hear in the episode.)

It features Stephen Dubner interviewingMatthew Gentzkow and Jesse Shapiro, a pair of economics professors at the University of Chicago’s Booth School of Business and co-authors (along with Bart J. Bronnenberg and Jean-Pierre Dubé) of a working paper called “Do Pharmacists Buy Bayer? Sophisticated Shoppers and the Brand Premium.” Along the way, we find out if conducting this kind of research leads a researcher to buy more store-brand items himself:

SHAPIRO: I think I probably buy a little more [store brand stuff] now than before we wrote the study. Not so much because of anything I learned from the study, but more because I think I would just feel hypocritical buying the branded good after writing this paper.

You’ll also hear from Steve Levitt about his shopping habits. He says there is one particular item that he’s always willing to splurge on. Can you guess what that is?