Skip to main content
SpringerLink
Log in

Uncertainty in the generic versus brand name prescription decision

  • Original Paper
  • Published:
Empirical Economics Aims and scope Submit manuscript

Abstract

This paper analyzes the impact of uncertainty concerning product quality of generic drugs on the substitution behavior of prescribing physicians. It is shown that uncertainty about the generic drug quality gives the physician a value of waiting for more information before switching to the generic version. In addition, it is shown that reducing the approval requirements for generic drugs, thereby increasing uncertainty about quality, may discourage physicians from prescribing such drugs. An empirical study testing the theoretical predictions is presented at the end of the paper.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Andersson F, Hertzman P (1993) Effective patent life of drugs in Sweden—a comparison with international studies. Manage Decis Econ 14: 53–63

    Article  Google Scholar 

  • Aronsson T, Bergman MA, Rudholm N (2001) The impact of generic competition on brand name market shares—evidence from micro data. Rev Ind Organ 19: 423–433

    Article  Google Scholar 

  • Bergman MA, Rudholm N (2003) The relative importance of actual and potential competition: empirical evidence from the pharmaceuticals market. J Ind Econ 51: 455–467

    Article  Google Scholar 

  • Dixit A (1993) The art of smooth pasting. Harwood Academic Publishers, Switzerland

    Google Scholar 

  • Dixit A, Pindyck R (1994) Investment under uncertainty. Princeton University Press, Princeton

    Google Scholar 

  • Fridman D, Jaffe A, Steinhardt S (1987) Physicians’ attitudes toward and knowledge about generic drug substitution. New York State J Med 87: 539–542

    Google Scholar 

  • Ganther JM, Kreling DH (2000) Consumer perceptions of risk and required cost savings for generic prescription drugs. J Am Pharm Assoc 40: 378–383

    Google Scholar 

  • Grabowski HG, Vernon JM (1992) Brand loyalty, entry and price competition in pharmaceuticals after the 1984 drug act. J Law Econ 35: 331–350

    Article  Google Scholar 

  • Grabowski HG, Vernon JM (1996) Longer patents for increased generic competition in the US. PharmacoEconomics 10: 110–123

    Article  Google Scholar 

  • Granlund D, Rudholm N (2008) Consumer information and pharmaceutical prices: theory and evidence. HUI working paper no 8

  • Granlund D (2008) Does physicians’ compensation affect the probability of their vetoing generic substitution? HUI working paper no 8

  • Gupta PB (1996) Survey of pharmacists: impact of the generic drug scandal and implications for marketing generic drugs. Health Market Quart 13: 109–120

    Article  Google Scholar 

  • Hartley K, Lavers RJ, Maynard AK (1986) Regulation and development times in the UK pharmaceutical industry. Scott J Polit Econ 33: 355–369

    Article  Google Scholar 

  • Hellerstein JK (1998) The importance of the pharmacist in the generic versus brand-name prescription decision. RAND J Econ 29: 108–136

    Article  Google Scholar 

  • Hellström J, Rudholm N (2004) Side effects of generic competition?. Eur J Health Econ 5: 203–208

    Article  Google Scholar 

  • Ito K, Mckean HP (1965) Diffusion processes and their sample paths. Springer, Berlin

    Google Scholar 

  • McDonald R, Siegel D (1986) The value of waiting to invest. Quart J Econ 101: 707–728

    Article  Google Scholar 

  • Meredith PA (2003) Bioequivalence and other unresolved issues in generic drug substitution. Clin Ther 25: 2875–2890

    Article  Google Scholar 

  • Meredith PA (1996) Generic drugs, therapeutic equivalence. Drug Saf 15: 233–242

    Article  Google Scholar 

  • Nakai K, Fujita M, Ogata H (2000) International harmonization of bioequivalence studies and issues shared in common. Yakugaku Zasshi 120: 1193–2000

    Google Scholar 

  • Oksendal B (1995) Stochastic differential equations: an introduction with applications, 4th edn. Springer, Berlin

    Google Scholar 

  • Palmer S, Smith PC (2000) Incorporating option values into the economic evaluation of health care technologies. J Health Econ 19: 755–766

    Article  Google Scholar 

  • Rudholm N (2005) Pharmaceutical insurance and the demand for prescription pharmaceuticals in Västerbotten, Sweden. Scand J Public Health 33: 50–56

    Article  Google Scholar 

  • Scott-Morton FM (1997) The objectives of the FDA´S office of generic drugs. NBER working paper 6143

  • Scott Morton FM (1999) Entry decisions in the generic pharmaceutical industry. RAND J Econ 30: 421–440

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economics, Umeå University, 901 87, Umeå, Sweden

    Jörgen Hellström

  2. Department of Economics, Dalarna University, 781 88, Borlänge, Sweden

    Niklas Rudholm

Authors
  1. Jörgen Hellström
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Niklas Rudholm
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Jörgen Hellström.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Hellström, J., Rudholm, N. Uncertainty in the generic versus brand name prescription decision. Empir Econ 38, 503–521 (2010). https://doi.org/10.1007/s00181-009-0277-7

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00181-009-0277-7

Keywords

Search

Navigation