IDEAS home Printed from https://ideas.repec.org/a/eee/jeborg/v213y2023icp1-25.html
   My bibliography  Save this article

The importance of the first generic substitution: Evidence from Sweden

Author

Listed:
  • Janssen, Aljoscha
  • Granlund, David

Abstract

We analyze changes in the willingness to substitute from prescribed pharmaceuticals to more affordable generic equivalents in response to the first experience with a substitution. Using Swedish individual-level data of prescribed and dispensed pharmaceuticals, we employ a dynamic event study and an instrumental variable approach to show that an initial substitution reduces the probability of opposing subsequent substitutions by 39 percentage points. We recommend that policy-makers target patients with a history of opposed substitution and offer additional discounts to promote substitution as long-term savings outweigh one-time costs.

Suggested Citation

  • Janssen, Aljoscha & Granlund, David, 2023. "The importance of the first generic substitution: Evidence from Sweden," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 1-25.
    • Handle: RePEc:eee:jeborg:v:213:y:2023:i:c:p:1-25
    DOI: 10.1016/j.jebo.2023.07.017
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167268123002500
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jebo.2023.07.017?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kate Ho & Joseph Hogan & Fiona Scott Morton, 2017. "The impact of consumer inattention on insurer pricing in the Medicare Part D program," RAND Journal of Economics, RAND Corporation, vol. 48(4), pages 877-905, December.
    2. Bart J. Bronnenberg & Jean-Pierre Dubé & Matthew Gentzkow & Jesse M. Shapiro, 2015. "Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(4), pages 1669-1726.
    3. Clément de Chaisemartin & Xavier D'Haultfœuille, 2020. "Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects," American Economic Review, American Economic Association, vol. 110(9), pages 2964-2996, September.
    4. Tat Chan & Chakravarthi Narasimhan & Ying Xie, 2013. "Treatment Effectiveness and Side Effects: A Model of Physician Learning," Management Science, INFORMS, vol. 59(6), pages 1309-1325, June.
    5. Mariana Carrera & Sofia Villas-Boas, 2023. "Generic Aversion and Observational Learning in the Over-the-Counter Drug Market," American Economic Journal: Applied Economics, American Economic Association, vol. 15(3), pages 380-410, July.
    6. Aljoscha Janssen, 2023. "Generic and Branded Pharmaceutical Pricing: Competition Under Switching Costs," The Economic Journal, Royal Economic Society, vol. 133(653), pages 1937-1967.
    7. Andrew T. Ching & Robert Clark & Ignatius Horstmann & Hyunwoo Lim, 2016. "The Effects of Publicity on Demand: The Case of Anti-Cholesterol Drugs," Marketing Science, INFORMS, vol. 35(1), pages 158-181, January.
    8. Jonathan D. Ketcham & Claudio Lucarelli & Eugenio J. Miravete & M. Christopher Roebuck, 2012. "Sinking, Swimming, or Learning to Swim in Medicare Part D," American Economic Review, American Economic Association, vol. 102(6), pages 2639-2673, October.
    9. Mats A. Bergman & David Granlund & Niklas Rudholm, 2017. "Squeezing the Last Drop Out of Your Suppliers: An Empirical Study of Market-Based Purchasing Policies for Generic Pharmaceuticals," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(6), pages 969-996, December.
    10. Ching, Andrew T., 2010. "Consumer learning and heterogeneity: Dynamics of demand for prescription drugs after patent expiration," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 619-638, November.
    11. David Granlund, 2021. "A New Approach to Estimating State Dependence in Consumers’ Brand Choices Applied to 762 Pharmaceutical Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 69(2), pages 443-483, June.
    12. Jonathan D. Ketcham & Claudio Lucarelli & Christopher A. Powers, 2015. "Paying Attention or Paying Too Much in Medicare Part D," American Economic Review, American Economic Association, vol. 105(1), pages 204-233, January.
    13. Andrew Ching & Masakazu Ishihara, 2010. "The effects of detailing on prescribing decisions under quality uncertainty," Quantitative Marketing and Economics (QME), Springer, vol. 8(2), pages 123-165, June.
    14. Gregory S. Crawford & Matthew Shum, 2005. "Uncertainty and Learning in Pharmaceutical Demand," Econometrica, Econometric Society, vol. 73(4), pages 1137-1173, July.
    15. Callaway, Brantly & Sant’Anna, Pedro H.C., 2021. "Difference-in-Differences with multiple time periods," Journal of Econometrics, Elsevier, vol. 225(2), pages 200-230.
    16. Keith M. Marzilli Ericson, 2014. "Consumer Inertia and Firm Pricing in the Medicare Part D Prescription Drug Insurance Exchange," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 38-64, February.
    17. Coscelli, Andrea & Shum, Matthew, 2004. "An empirical model of learning and patient spillovers in new drug entry," Journal of Econometrics, Elsevier, vol. 122(2), pages 213-246, October.
    18. Benjamin R. Handel & Jonathan T. Kolstad, 2015. "Health Insurance for "Humans": Information Frictions, Plan Choice, and Consumer Welfare," American Economic Review, American Economic Association, vol. 105(8), pages 2449-2500, August.
    19. Nuno Camacho & Bas Donkers & Stefan Stremersch, 2011. "Predictably Non-Bayesian: Quantifying Salience Effects in Physician Learning About Drug Quality," Marketing Science, INFORMS, vol. 30(2), pages 305-320, 03-04.
    20. Anderson, Simon P. & Ciliberto, Federico & Liaukonyte, Jura, 2013. "Information content of advertising: Empirical evidence from the OTC analgesic industry," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 355-367.
    21. Aljoscha Janssen, 2022. "Price dynamics of Swedish pharmaceuticals," Quantitative Marketing and Economics (QME), Springer, vol. 20(4), pages 313-351, December.
    22. Granlund, David & Sundström, David, 2018. "Physicians prescribing originals causes welfare losses," Economics Letters, Elsevier, vol. 170(C), pages 143-146.
    23. Maria Polyakova, 2016. "Regulation of Insurance with Adverse Selection and Switching Costs: Evidence from Medicare Part D," American Economic Journal: Applied Economics, American Economic Association, vol. 8(3), pages 165-195, July.
    24. Sun, Liyang & Abraham, Sarah, 2021. "Estimating dynamic treatment effects in event studies with heterogeneous treatment effects," Journal of Econometrics, Elsevier, vol. 225(2), pages 175-199.
    25. Granlund, David, 2009. "Are private physicians more likely to veto generic substitution of prescribed pharmaceuticals?," Social Science & Medicine, Elsevier, vol. 69(11), pages 1643-1650, December.
    26. Toshiaki Iizuka, 2012. "Physician Agency and Adoption of Generic Pharmaceuticals," American Economic Review, American Economic Association, vol. 102(6), pages 2826-2858, October.
    27. Jason Abaluck & Jonathan Gruber, 2016. "Evolving Choice Inconsistencies in Choice of Prescription Drug Insurance," American Economic Review, American Economic Association, vol. 106(8), pages 2145-2184, August.
    28. Benjamin R. Handel, 2013. "Adverse Selection and Inertia in Health Insurance Markets: When Nudging Hurts," American Economic Review, American Economic Association, vol. 103(7), pages 2643-2682, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hjalmarsson, Linn & Schmid, Christian P.R. & Schreiner, Nicolas, 2024. "A Prescription for Knowledge: Patient Information and Generic Substitution," Working papers 2024/05, Faculty of Business and Economics - University of Basel.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Janssen, Aljoscha & Granlund, David, 2022. "The Importance of the First Generic Substitution: Evidence from Sweden," Working Paper Series 1428, Research Institute of Industrial Economics.
    2. M. Kate Bundorf & Maria Polyakova & Ming Tai-Seale, 2019. "How do Humans Interact with Algorithms? Experimental Evidence from Health Insurance," NBER Working Papers 25976, National Bureau of Economic Research, Inc.
    3. Janssen, Aljoscha, 2020. "Switching Costs, Brand Premia and Behavioral Pricing in the Pharmaceutical Market," Working Paper Series 1317, Research Institute of Industrial Economics.
    4. David Granlund, 2021. "A New Approach to Estimating State Dependence in Consumers’ Brand Choices Applied to 762 Pharmaceutical Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 69(2), pages 443-483, June.
    5. Tomas Pedro Sanguinetti, 2019. "How Do Couples Choose Individual Insurance Plans? Evidence from Medicare Part D," 2019 Papers psa1760, Job Market Papers.
    6. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    7. Florian Heiss & Daniel McFadden & Joachim Winter & Amelie Wuppermann & Bo Zhou, 2016. "Inattention and Switching Costs as Sources of Inertia in Medicare Part D," NBER Working Papers 22765, National Bureau of Economic Research, Inc.
    8. Drake, Coleman & Ryan, Conor & Dowd, Bryan, 2022. "Sources of inertia in the individual health insurance market," Journal of Public Economics, Elsevier, vol. 208(C).
    9. Dahl, Gordon B. & Forbes, Silke J., 2023. "Doctor switching costs," Journal of Public Economics, Elsevier, vol. 221(C).
    10. Jonathan D. Ketcham & Nicolai V. Kuminoff & Christopher A. Powers, 2016. "Estimating the Heterogeneous Welfare Effects of Choice Architecture: An Application to the Medicare Prescription Drug Insurance Market," NBER Working Papers 22732, National Bureau of Economic Research, Inc.
    11. Fleitas, Sebastián, 2018. "Who benefits when inertia is reduced? Competition, quality and returns to skill in health care markets," Research Department working papers 1161, CAF Development Bank Of Latinamerica.
    12. Zarek Brot-Goldberg & Timothy Layton & Boris Vabson & Adelina Yanyue Wang, 2023. "The Behavioral Foundations of Default Effects: Theory and Evidence from Medicare Part D," American Economic Review, American Economic Association, vol. 113(10), pages 2718-2758, October.
    13. Andrew T. Ching & Tülin Erdem & Michael P. Keane, 2013. "Learning Models: An Assessment of Progress, Challenges and New Developments," Economics Papers 2013-W07, Economics Group, Nuffield College, University of Oxford.
    14. Keane, Michael & Ketcham, Jonathan & Kuminoff, Nicolai & Neal, Timothy, 2021. "Evaluating consumers’ choices of Medicare Part D plans: A study in behavioral welfare economics," Journal of Econometrics, Elsevier, vol. 222(1), pages 107-140.
    15. Francesco Decarolis & Andrea Guglielmo & Clavin Luscombe, 2020. "Open enrollment periods and plan choices," Health Economics, John Wiley & Sons, Ltd., vol. 29(7), pages 733-747, July.
    16. Kaufmann, Cornel & Müller, Tobias & Hefti, Andreas & Boes, Stefan, 2018. "Does personalized information improve health plan choices when individuals are distracted?," Journal of Economic Behavior & Organization, Elsevier, vol. 149(C), pages 197-214.
    17. Granlund, David, 2019. "A new approach to estimating state dependence in consumers’ brand choices applied to 762 pharmaceutical markets," Umeå Economic Studies 960, Umeå University, Department of Economics.
    18. McKibbin, Rebecca, 2023. "The effect of RCTs on drug demand: Evidence from off-label cancer drugs," Journal of Health Economics, Elsevier, vol. 90(C).
    19. Jie Bai, 2016. "Melons as Lemons: Asymmetric Information, Consumer Learning and Seller Reputation," Natural Field Experiments 00540, The Field Experiments Website.
    20. Nathaniel Hendren & Camille Landais & Johannes Spinnewijn, 2021. "Choice in Insurance Markets: A Pigouvian Approach to Social Insurance Design," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 457-486, August.

    More about this item

    Keywords

    Generic substitution; Pharmaceuticals; Health care costs;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:213:y:2023:i:c:p:1-25. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jebo .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.