Using 1437 samples of Ciprofloxacin from 18 low-to-middle-income countries, we aim to understand the role that regulation and distribution channel have played in signaling and ensuring drug safety. According to the World Health Organization, some poor quality drugs are deliberately and fraudulently mislabeled with respect to identity or source while others can have incorrect quantities of active ingredient as a result of manufacturing error or poor storage. Given the difficulty to prove “intent to deceive”, we classify poor quality drugs as counterfeit if they fail a visual check or contain zero correct active ingredient, and as substandard if they pass the visual check and contain some but less than 80% of the correct active ingredient.
Following the Global Pharma Health Fund e.V. Minilab® protocol, we find 9.88% of samples are poor quality and 41.5% of the failures are counterfeits. Both product registration and chain affiliation if retailers are strong indicators of higher probability to pass in the Minilab test and higher retail price. Conditional on quality failures, chain affiliation is more likely to indicate substandard while product registration with local government is more likely to indicate counterfeit. In other words, registered products are more likely to be targeted by counterfeiters. Furthermore, substandard drugs are priced much lower than comparable generics in the same city but counterfeits offer almost no discount from the targeted genuine version. These findings have important implications for both consumers and policy makers.