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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)

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    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.

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    File URL: http://hdl.handle.net/10.1002/mde.1486
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 31 (2010)
    Issue (Month): 5 ()
    Pages: 325-338

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    Handle: RePEc:wly:mgtdec:v:31:y:2010:i:5:p:325-338

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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    References

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    1. Malueg, D.A. & Schwartz, M., 1993. "Parallel Imports, Demand Dispersion and International Price Discrimination," Papers 93-6, U.S. Department of Justice - Antitrust Division.
    2. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
    3. Keith E. Maskus, 2000. "Parallel Imports," The World Economy, Wiley Blackwell, vol. 23(9), pages 1269-1284, 09.
    4. Tommaso Valletti & Stefan Szymanski, 2006. "Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis," CEIS Research Paper 75, Tor Vergata University, CEIS.
    5. Panos Kanavos & Joan Costa-Font, 2005. "Pharmaceutical parallel trade in Europe: stakeholder and competition effects," Economic Policy, CEPR & CES & MSH, vol. 20(44), pages 751-798, October.
    6. Hausman, J.A. & Mackie-Mason, J.K., 1988. "Price Discrimination And Patent Policy," Papers 88-13, Michigan - Center for Research on Economic & Social Theory.
    7. Stefan Szymanski & Tommaso Valletti, 2005. "Parallel trade, price discrimination, investment and price caps," Economic Policy, CEPR & CES & MSH, vol. 20(44), pages 705-749, October.
    8. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
    9. 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.
    10. Patricia M. Danzon, 1998. "The Economics of Parallel Trade," PharmacoEconomics, Springer Healthcare | Adis, vol. 13(3), pages 293-304.
    11. 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.
    12. Knox, Daniel & Richardson, Martin, 2003. "Trade policy and parallel imports," European Journal of Political Economy, Elsevier, vol. 19(1), pages 133-151, March.
    13. Pecorino, Paul, 2002. "Should the US allow prescription drug reimports from Canada?," Journal of Health Economics, Elsevier, vol. 21(4), pages 699-708, July.
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    Cited by:
    1. 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 of Business and Economics 16/2012, Department of Business and Economics, University of Southern Denmark.

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