A New Approach to Estimating State Dependence in Consumers’ Brand Choices Applied to 762 Pharmaceutical Markets*

Abstract

This article shows how state dependence effects can be estimated for many markets and with few assumptions by using data on how the shares of consumers buying specific products differ between those who bought the same product on their latest purchase occasion and those who did not. Using information regarding which product was cheapest when consumers made their last purchases as instrument, I estimate that state dependence increases the probability that consumers will buy the product they bought the last time by eight percentage points. This effect is larger for women and the elderly than for men and younger consumers.

The importance of the first generic substitution: Evidence from Sweden

“…Patients stick to a pharmaceutical product over longer periods. Such a behavior of state dependence is well documented for the Swedish pharmaceutical market (Granlund, 2021;Janssen, 2020). While we do not distinguish between the reasons for an initial substitution, we document a fundamental change in behavior due to the first substitution.…”

“…Health economic studies in multiple countries have concluded that patients prefer originals and experience history dependence when choosing pharmaceuticals, meaning that they tend to consume products with which they have had a positive experience (Bronnenberg et al, 2015;Feng, 2020;Granlund, 2021;Janssen, 2020). 3 We add to the literature but also highlight that it is possible to break such history dependence.…”

The Importance of the First Generic Substitution: Evidence from Sweden

“…Health economic studies in multiple countries have concluded that patients prefer originals and experience history dependence when choosing pharmaceuticals, meaning that they tend to consume products with which they have had a positive experience (Bronnenberg et al, 2015;Feng, 2020;Granlund, 2021;Janssen, 2020). 3 We add to the literature but also highlight that it is possible to break such history dependence.…”