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

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  • David Granlund

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.

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  • 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.
    • Handle: RePEc:bla:jindec:v:69:y:2021:i:2:p:443-483
    DOI: 10.1111/joie.12266
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    Cited by:

    1. 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.
    2. Granlund, David & Rudholm, Niklas, 2023. "Calculating the probability of collusion based on observed price patterns," Umeå Economic Studies 1014, Umeå University, Department of Economics, revised 13 Oct 2023.
    3. Aljoscha Janssen, 2022. "Price dynamics of Swedish pharmaceuticals," Quantitative Marketing and Economics (QME), Springer, vol. 20(4), pages 313-351, December.
    4. Janssen, Aljoscha & Granlund, David, 2022. "The Importance of the First Generic Substitution: Evidence from Sweden," Working Paper Series 1428, Research Institute of Industrial Economics.

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