NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Neha Bairoliya

Harvard Center for Population
and Development Studies
9 Bow Street
Cambridge, MA 02138

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Harvard University

NBER Working Papers and Publications

August 2017Consumer Learning and the Entry of Generic Pharmaceuticals
with Pinar Karaca-Mandic, Jeffrey S. McCullough, Amil Petrin: w23662
Generic pharmaceuticals provide low-cost access to treatment. Despite their chemical equivalence to branded products, many mechanisms may hinder generic substitution. Consumers may be unaware of their equivalence. Firms may influence consumers through advertising or product line extensions. We estimate a structural model of pharmaceutical demand where consumers learn about stochastic match qualities with specific drugs. Naïve models, without consumer heterogeneity and learning, grossly underestimate demand elasticities. Consumer bias against generics critically depends on experience. Advertising and line extensions yield modest increases in branded market shares. These effects are dominated by consumers’ initial perception bias against generics.
 
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