History-Dependence in Drug Demand: Implications for Entry Timing
81 Pages Posted: 28 Jan 2019 Last revised: 20 Mar 2020
Date Written: March 19, 2020
I use a temporal discontinuity approach to test for history-dependence in chronic drug choice. Patients exhibit high inertia, and their previous choices shape their adoption of generics and follow-on drug products. Leveraging a quasi-experimental approach, I estimate a model of drug demand that captures these patterns. The implied switching costs are 2-3 times the average cost-sharing faced by patients. These demand dynamics create early-entry incentives in two entry settings in the industry: usage of expedited review and line-extension launches.
Keywords: Prescription Drug Demand, Inertia, Switching Costs, History-Dependence, Generic Drugs, Line Extensions
JEL Classification: L65, L11, L21, L41, I12, I18
Suggested Citation: Suggested Citation