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A new approach to estimating state dependence in consumers’ brand choices applied to 762 pharmaceutical markets

David Granlund (david.granlund@umu.se)
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David Granlund: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden, https://www.umu.se/handelshogskolan

No 960, Umeå Economic Studies from Umeå University, Department of Economics

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 buying specific products differ between those who bought the same product on their latest purchase occasion and other consumers. Using as instrument information regarding which product was cheapest when consumers made their last purchase, I estimate that state dependence increases the probability that consumers will buy the product they bought the last time by 8 percentage points. This effect is larger for women and the elderly than for men and younger consumers. The state dependence effect is also larger for brand-names than for generic products, but not significantly related to number of previous purchases.

Keywords: Brand choice; Consumer dynamics; Drugs; Quasi-experiment econometrics; State dependence (search for similar items in EconPapers)
JEL-codes: D12 D90 I11 L65 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2019-08-22
New Economics Papers: this item is included in nep-dcm and nep-ind
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