The effect of inertia on brand-name versus generic drug choices

Consumers’ tendency to repurchase products is called inertia. This study investigates inertia in brand-name and generic drug choices, which is manifested by the slow and limited adoption of generic drugs despite their lower prices. We use claims data from Japan and focus on the generic entry of a widely prescribed lipid-lowering drug, Pitavastatin. Observing the periods before and after the generic entry gives us a unique opportunity to identify the effect of inertia. We construct a choice model that incorporates price, heterogeneous brand preferences, and inertia to quantify each component's magnitude. We find that both inertia and heterogeneity in brand preferences have substantial effects. Counterfactual simulations suggest that a nudging policy that removes inertia from previous brand-name users, such as by alerting the patients to switch to cheaper generic drugs, may have substantial effects and enable patients to choose optimally.