State Dependence in Pharmaceutical Prescription Choice: Implications for Physician Authority and Market Structure

Exploiting a rich dataset on complete physician and patient prescription histories of anti-ulcer medication in Italy over a three-year period, we explore the extent of persistence in pharmaceutical prescription choices over time. The results have important implications along two dimensions. First, persistence in choice behavior over time and across doctors can shed light on the degree of patient versus physician authority in dictating drug prescriptions. Second, apart from authority issues, choice persistence implies switching costs in drug markets. The presence of switching costs can have importance e ects both on competition and entry conditions in pharmaceutical markets and in the consumer welfare and (insurer) cost of the lifetime treatment of disease. [Verify:] Controlling for unobserved heterogeity with either xed or random e ects estimators lessens but does not eliminate the strength of these ndings. Preliminary: comments welcome. We thank Drs. Giuseppe Traversa and Roberto Da Cas at the Istituto Superiore di Sanita' for allowing us access to the data. The authors may be contacted at [email protected] and [email protected]