The Economics of Parallel Trade
AbstractThe potential for parallel trade in the European Union (EU) has grown with the accession of low price countries and the harmonisation of registration requirements. Parallel trade implies a conflict between the principle of autonomy of member states to set their own pharmaceutical prices, the principle of free trade and the industrial policy goal of promoting innovative research and development (R&D). Parallel trade in pharmaceuticals does not yield the normal efficiency gains from trade because countries achieve low pharmaceutical prices by aggressive regulation, not through superior efficiency. In fact, parallel trade reduces economic welfare by undermining price differentials between markets. Pharmaceutical R&D is a global joint cost of serving all consumers worldwide; it accounts for roughly 30% of total costs. Optimal (welfare maximising) pricing to cover joint costs (Ramsey pricing) requires setting different prices in different markets, based on inverse demand elasticities. By contrast, parallel trade and regulation based on international price comparisons tend to force price convergence across markets. In response, manufacturers attempt to set a uniform `euro' price. The primary losers from `euro' pricing will be consumers in low income countries who will face higher prices or loss of access to new drugs. In the long run, even higher income countries are likely to be worse off with uniform prices, because fewer drugs will be developed. One policy option to preserve price differentials is to exempt on-patent products from parallel trade. An alternative is confidential contracting between individual manufacturers and governments to provide country-specific ex post discounts from the single `euro' wholesale price, similar to rebates used by managed care in the US. This would preserve differentials in transactions prices even if parallel trade forces convergence of wholesale prices.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Springer Healthcare | Adis in its journal PharmacoEconomics.
Volume (Year): 13 (1998)
Issue (Month): 3 ()
Contact details of provider:
Web page: http://pharmacoeconomics.adisonline.com/
Pharmacoeconomics; Reviews-on-treatment; Cost-allocation; Pharmaceutical-industry; Health-policy; Health-economics;
Find related papers by JEL classification:
- C - Mathematical and Quantitative Methods
- D - Microeconomics
- I - Health, Education, and Welfare
- Z - Other Special Topics
- I1 - Health, Education, and Welfare - - Health
- I19 - Health, Education, and Welfare - - Health - - - Other
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Ganslandt, Mattias & Maskus, Keith E., 2004.
"Parallel imports and the pricing of pharmaceutical products: evidence from the European Union,"
Journal of Health Economics,
Elsevier, vol. 23(5), pages 1035-1057, September.
- Ganslandt, Mattias & Maskus, Keith E., 2004. "Parallel Import and the Pricing of Pharmaceutical Products: Evidence from the European Union," Working Paper Series 622, Research Institute of Industrial Economics.
- Ganslandt, Mattias & Maskus, Keith E., 2001.
"Parallel imports of pharmaceutical products in the European Union,"
Policy Research Working Paper Series
2630, The World Bank.
- Ganslandt, Mattias & Maskus, Keith E., 2001. "Parallel Imports of Pharmaceutical Products in the European Union," Working Paper Series 546, Research Institute of Industrial Economics.
- Grossman, Gene & Lai, Edwin, 2006.
"Parallel Imports and Price Controls,"
CEPR Discussion Papers
5779, C.E.P.R. Discussion Papers.
- Rajat Acharyya & Maria D.C. Garcia-Alonso, 2009. "Weak IPR and Imitation in the South and International Exhaustion of Patent Rights in the North for Innovated Drugs: A Policy Game," Studies in Economics 0919, Department of Economics, University of Kent.
- Bordoy,Catalina & Jelovac,Izabela, 2003.
"Pricing and Welfare of Parallel Imports in the Pharmaceutical Industry,"
004, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
- Bordoy,Catalina & Jelovac,Izabela, 2003. "Pricing and Welfare of Parallel Imports in the Pharmaceutical Industry," Research Memoranda 004, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology.
- Panos Kanavos & Sotiris Vandoros, 2010. "Competition in prescription drug markets: is parallel trade the answer?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(5), pages 325-338.
- Izabela Jelovac & Catalina Bordoy, 2005. "Pricing and Welfare Implications of Parallel Imports in the Pharmaceutical Industry," International Journal of Health Care Finance and Economics, Springer, vol. 5(1), pages 5-21, January.
- repec:ner:maastr:urn:nbn:nl:ui:27-19469 is not listed on IDEAS
- Patricia M. Danzon & Y. Richard Wang & Liang Wang, 2005.
"The impact of price regulation on the launch delay of new drugs-evidence from twenty-five major markets in the 1990s,"
John Wiley & Sons, Ltd., vol. 14(3), pages 269-292.
- Patricia M. Danzon & Y. Richard Wang & Liang Wang, 2003. "The Impact of Price Regulation on the Launch Delay of New Drugs - Evidence from Twenty-Five Major Markets in the 1990s," NBER Working Papers 9874, National Bureau of Economic Research, Inc.
- Königbauer, Ingrid, 2006. "Dealing with Rising Health Care Costs: The Case of Pharmaceuticals," Munich Dissertations in Economics 5640, University of Munich, Department of Economics.
- Ismo Linnosmaa & Raine Hermans & Taru Hallinen, 2004. "Price-cost margin in the pharmaceutical industry," The European Journal of Health Economics, Springer, vol. 5(2), pages 122-128, May.
- Patricia M. Danzon & Eric L. Keuffel, 2013. "Regulation of the Pharmaceutical-Biotechnology Industry," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned? National Bureau of Economic Research, Inc.
- Stefan Felder, 2006. "Third-Degree Price Discrimination in the Presence of Subsidies," German Economic Review, Verein für Socialpolitik, vol. 7, pages 419-426, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dave Dustin).
If references are entirely missing, you can add them using this form.