Brand Loyalty and Learning in Pharmaceutical Demand

Medicines for chronic conditions like high cholesterol, heart disease, and diabetes are repeatedly used for a long period of time. Consumer dynamics thus plays an important role in the demand for those drugs. The paper estimates a demand model with brand loyalty and learning, using data from cholesterol-lowering drug markets in the United States. The estimates suggest high switching costs and strong learning effects at the molecule level in the markets. Switching costs raise the predicted probability of choosing the same drugs successively, and learning greatly increases patient stickiness to a molecule in the long run. I discuss implications of the estimated state-dependent effects for drug manufacturers, insurance companies, and healthcare policy makers.