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Generic Substitution


  • Furu, Kari

    (Ragnar Frisch Centre for Economic Research)

  • Dalen, Dag Morten

    (Ragnar Frisch Centre for Economic Research)

  • Locatelli, Marilena

    (University of Turin)

  • Strøm, Steinar

    () (University of Turin)


We examine the importance of prices, doctor and patient characteristics, and market institutions for the likelihood of choosing generic drugs instead of the more expensive original brand-name version. Using an extensive dataset extracted from The Norwegian Prescription Database (NorPD) containing all prescriptions written in March 2004 and 2006 on 23 different drugs (chemical substances) in Norway, we find strong evidence for the importance of both doctor and patient characteristics for the choice probabilities. The price difference between brand and generic versions and insurance coverage both affect generic substitution. Moreover, controlling for the retail chain affiliation of the dispensing pharmacy, we find that pharmacies play an important role for patients’ willingness to substitute. In markets with more recent entry of generic drugs, the brand-name loyalty proves to be much stronger, giving less explanatory power to our demand model.

Suggested Citation

  • Furu, Kari & Dalen, Dag Morten & Locatelli, Marilena & Strøm, Steinar, 2008. "Generic Substitution," Memorandum 11/2008, Oslo University, Department of Economics.
  • Handle: RePEc:hhs:osloec:2008_011

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    References listed on IDEAS

    1. Richard G. Frank & David S. Salkever, 1997. "Generic Entry and the Pricing of Pharmaceuticals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 75-90, March.
    2. Ernst R. Berndt, 2002. "Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 45-66, Fall.
    3. Brekke, Kurt R. & Grasdal, Astrid L. & Holms, Tor Helge, 2009. "Regulation and pricing of pharmaceuticals: Reference pricing or price cap regulation?," European Economic Review, Elsevier, vol. 53(2), pages 170-185, February.
    4. Regan, Tracy L., 2008. "Generic entry, price competition, and market segmentation in the prescription drug market," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 930-948, July.
    5. Coscelli, Andrea, 2000. "The Importance of Doctors' and Patients' Preferences in the Prescription Decision," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 349-369, September.
    6. Judith K. Hellerstein, 1998. "The Importance of the Physician in the Generic Versus Trade-Name Prescription Decision," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 108-136, Spring.
    7. Grabowski, Henry G & Vernon, John M, 1992. "Brand Loyalty, Entry, and Price Competition in Pharmaceuticals after the 1984 Drug Act," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 331-350, October.
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    More about this item


    Generics; substitution; microdata; random utility model;

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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