History-Dependence in Drug Demand: Implications for Entry Timing

81 Pages Posted: 28 Jan 2019 Last revised: 20 Mar 2020

See all articles by Josh Feng

Josh Feng

University of Utah - David Eccles School of Business; National Bureau of Economic Research

Date Written: March 19, 2020

Abstract

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

Feng, Josh, History-Dependence in Drug Demand: Implications for Entry Timing (March 19, 2020). Available at SSRN: https://ssrn.com/abstract=3316426 or http://dx.doi.org/10.2139/ssrn.3316426

Josh Feng (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
2016977982 (Phone)

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