Consumer Learning and the Entry of Generic Pharmaceuticals

50 Pages Posted: 17 Aug 2017 Last revised: 28 Aug 2021

See all articles by Neha Bairoliya

Neha Bairoliya

University of Southern California

Pinar Karaca-Mandic

University of Minnesota - Twin Cities - School of Public Health

Jeffrey McCullough

University of Michigan

Amil Petrin

University of Minnesota - Duluth; National Bureau of Economic Research (NBER)

Date Written: August 2017

Abstract

Generic pharmaceuticals provide low-cost access to treatment. Despite their chemical equivalence to branded products, many mechanisms may hinder generic substitution. Consumers may be unaware of their equivalence. Firms may influence consumers through advertising or product line extensions. We estimate a structural model of pharmaceutical demand where consumers learn about stochastic match qualities with specific drugs. Naïve models, without consumer heterogeneity and learning, grossly underestimate demand elasticities. Consumer bias against generics critically depends on experience. Advertising and line extensions yield modest increases in branded market shares. These effects are dominated by consumers’ initial perception bias against generics.

Suggested Citation

Bairoliya, Neha and Karaca-Mandic, Pinar and McCullough, Jeffrey and Petrin, Amil, Consumer Learning and the Entry of Generic Pharmaceuticals (August 2017). NBER Working Paper No. w23662, Available at SSRN: https://ssrn.com/abstract=3018319

Neha Bairoliya (Contact Author)

University of Southern California ( email )

701 Exposition Blvd
Los Angeles, CA 90089-1422
United States

HOME PAGE: http://https://www.nehabairoliya.com/

Pinar Karaca-Mandic

University of Minnesota - Twin Cities - School of Public Health ( email )

15-223 Phillips-Wangensteen Building
Box 729, 420 Delaware Street SE
Minneapolis, MN 55455-0392
United States

Jeffrey McCullough

University of Michigan ( email )

1415 Washington Heights
SPH II
Ann Arbor, MI 48109
United States
7349361189 (Phone)
7347644338 (Fax)

HOME PAGE: http://https://sph.umich.edu/faculty-profiles/mccullough-jeffrey.html

Amil Petrin

University of Minnesota - Duluth ( email )

1049 University Drive
Duluth, MN 55812
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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