Learning About New Products: An Empirical Study of Physicians’ Behavior

Abstract

... goods. We develop and estimate a model to predict market demand for new experience In particular, we examine how forward-looking physicians learn about the quality of a new pharmaceutical through their prescription experience. We focus on omeprazole, an anti-ulcer molecule that entered the Italian market in 1990. Using panel data on prescriptions written by Italian physicians between 1990 and 1992, we estimate a dynamic discrete choice model of physician Bayesian learning. Exploiting theoretical properties of the model, we reduce its solution to a computationally fast calculation of physicians’optimal decision rules. According to our counterfactuals, physicians’ initial pessimism and uncertainty have large, negative effects on their propensity to prescribe the new drug, and on expected patient health outcomes. Physicians’ short-sightedness magnifies these effects, because it delays physicians’ learning. In contrast, subsidizing the new good can mitigate informational losses