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Competition in prescription drug markets: is parallel trade the answer?

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  • Panos Kanavos

    (The London School of Economics and Political Science, London, UK)

  • Sotiris Vandoros

    (The London School of Economics and Political Science, London, UK)

Abstract

This article uses a price determination model with dynamic panel data estimation to examine the extent to which pharmaceutical parallel trade promotes price competition and leads to downward price convergence. Little evidence of sustainable price competition is found. We find that prices are mainly affected by regulation and by competition in the wholesale distribution chain; that the pricing strategy of parallel distributors resembles that of originator drugs in importing countries; and that there may be upward rather than downward price convergence. Drawing on the European evidence, the findings also indicate that opening the US market to parallel imports will not necessarily lead to competition and enhance pharmaceutical cost containment. Copyright © 2010 John Wiley & Sons, Ltd.

Suggested Citation

  • 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.
    • Handle: RePEc:wly:mgtdec:v:31:y:2010:i:5:p:325-338
    DOI: 10.1002/mde.1486
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    References listed on IDEAS

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    Cited by:

    1. Pierre Dubois & Morten Sæthre, 2020. "On the Effect of Parallel Trade on Manufacturers' and Retailers' Profits in the Pharmaceutical Sector," Econometrica, Econometric Society, vol. 88(6), pages 2503-2545, November.
    2. David Granlund & Miyase Koksal-Ayhan, 2015. "Parallel imports and a mandatory substitution reform: a kick or a muff for price competition in pharmaceuticals?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(9), pages 969-983, December.
    3. Hostenkamp, Gisela & Kronborg, Christian & Arendt, Jacob Nielsen, 2012. "Parallel imports of hospital pharmaceuticals: An empirical analysis of price effects from parallel imports and the design of procurement procedures in the Danish hospital sector," Discussion Papers on Economics 16/2012, University of Southern Denmark, Department of Economics.
    4. Granlund David & Köksal-Ayhan Miyase Yesim, 2016. "EU Enlargement, Parallel Trade and Price Competition in Pharmaceuticals: Has the Price Competition increased?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 1069-1092, April.
    5. Tomaso Duso & Annika Herr & Moritz Suppliet, 2014. "The Welfare Impact Of Parallel Imports: A Structural Approach Applied To The German Market For Oral Anti‐Diabetics," Health Economics, John Wiley & Sons, Ltd., vol. 23(9), pages 1036-1057, September.
    6. David Granlund, 2022. "The Price Effects of Competition from Parallel Imports and Therapeutic Alternatives: Using Dynamic Models to Estimate the Causal Effect on the Extensive and Intensive Margins," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(1), pages 63-92, February.
    7. David Granlund, 2022. "Direct and indirect savings from parallel imports in Sweden," Health Economics Review, Springer, vol. 12(1), pages 1-14, December.

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