Characteristics of demand for pharmaceutical products : an examination of four cephalosporins

54 Pages·1996·1 MB·English

by  Ellison, Sara Fisher

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CHARACTERISTICS OFDEMANDFOR
PHARMACEUTICAL PRODUCTS: AN
EXAMINATIONOFFOUR CEPHALOSPORINS
Sarah Ellison,Iain Cockburn,
Avi Griliches,JerryHausman
96-24 August, 1996
massachusetts
institute of
technology
50 memorial drive
Cambridge, mass. 02139

CHARACTERISTICS OFDEMANDFOR
PHARMACEUTICAL PRODUCTS: AN
EXAMINATION OFFOUR CEPHALOSPORINS
Sarah Ellison,Iain Cockburn,
Avi Griliches,JerryHausman
96-24 August, 1996
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Characteristics of Demand for Pharmaceutical Products:
An Examination of Four Cephalosporins
Sara Fisher Ellison, Iain Cockburn, Zvi Griliches, and Jerry Hausman^
August, 1996
^MIT, UBC and NBER, Harvard and NBER, and MIT and NBER, respectively. We would like
to thank Ernst Berndt, Glenn Ellison, Judith Hellerstein, Greg Leonard, Kathryn MacFarlane, and
Frank Wolak, for helpful comments and information, and Fiona Scott Morton and Rachel Vicedo
for research assistance. We would also like to thank those persons at IMS America and Merck
Pharmaceuticals who helped us obtain these data. Finally, we gratefully acknowledge financial
support from the Sloan Foundation grant to the NBER.
Abstract
In this paper we model demand for four cephalosporins and compute own- and cross-
price elasticities between branded and generic versions ofthe four drugs. We model demand
as a multistage budgeting problem, and argue that such a model is appropriate to the
multistage nature ofthe purchase ofpharmaceutical products, in particular, the prescribing
and dispensing stages. We find quite high elasticities between generic substitutes and also
significant elasticities between some therapeutic substitutes.
Sara Fisher Ellison
MIT Department of Economics
50 Memorial Drive
MA
Cambridge, 02139