One of the major directions of health policy is the attempt to contain expenditures on pharmaceuticals by encouraging substitution
of generic for brand name drug products. Yet, a major marketing survey of prescribing and dispensing patterns in California
in 1977 found relatively little drug substitution occurring, and in fact substitution of more expensive products occurred
more frequently than did substitution of less expensive products. This article tests alternative models of pharmacy dispensing
behavior to better explain substitution patterns and it estimates price functions to measure the extent to which cost savings
on generic products are passed on to consumers.