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EU Enlargement, Parallel Trade and Price Competition in Pharmaceuticals. What's blame? Derogation or perception?

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Author Info

  • Granlund, David

    ()
    (The Swedish Retail Institute and Umeå University)

  • Yesim Köksal, Miyase

    ()
    (Department of Economics, School of Business, Economics and Law, Göteborg University)

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    Abstract

    Given the cost of trade and availability of pharmaceuticals, the driving force for parallel trade is the price difference between the source (exporting) and the destination (importing) country. An increase in the price difference or in the availability of pharmaceuticals for parallel trade should increase price competition in the destination country. Using 2003-2007 data from Sweden we investigated whether EU enlargement in 2004, when new countries with low pharmaceutical prices joined the EU, increased competition from parallel imports. Drugs facing competition from parallel imports are found to have on average 17% to 21% lower prices than they would have had if they had never faced such competition. But, contrary to expectation, EU enlargement is not found to have increased this effect, which might be explained by derogations and changes in consumer perceptions of parallel imports.

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    File URL: http://hdl.handle.net/2077/25500
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    Bibliographic Info

    Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 499.

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    Length: 28 pages
    Date of creation: 18 May 2011
    Date of revision:
    Handle: RePEc:hhs:gunwpe:0499

    Contact details of provider:
    Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
    Phone: 031-773 10 00
    Web page: http://www.handels.gu.se/econ/
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    Related research

    Keywords: EU enlargement; parallel trade; pharmaceuticals; price competition;

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    References

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    1. Pecorino, Paul, 2002. "Should the US allow prescription drug reimports from Canada?," Journal of Health Economics, Elsevier, Elsevier, vol. 21(4), pages 699-708, July.
    2. Yongmin Chen & Keith Maskus, 2005. "Vertical Pricing and Parallel Imports," The Journal of International Trade & Economic Development, Taylor & Francis Journals, Taylor & Francis Journals, vol. 14(1), pages 1-18.
    3. J. Lundkvist, 2002. "Pricing and reimbursement of drugs in Sweden," The European Journal of Health Economics, Springer, Springer, vol. 3(1), pages 66-70, March.
    4. Kurt R. Brekke & Astrid L. Grasdal & Tor Helge Holmås, 2007. "Regulation and Pricing of Pharmaceuticals: Reference Pricing or Price Cap Regulation?," CESifo Working Paper Series 2059, CESifo Group Munich.
    5. Ganslandt, Mattias & Maskus, Keith E., 2004. "Parallel imports and the pricing of pharmaceutical products: evidence from the European Union," Journal of Health Economics, Elsevier, Elsevier, vol. 23(5), pages 1035-1057, September.
    6. 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, Springer, vol. 5(1), pages 5-21, January.
    7. Keith E. Maskus & Yongmin Chen, 2004. "Vertical Price Control and Parallel Imports: Theory and Evidence," Review of International Economics, Wiley Blackwell, vol. 12(4), pages 551-570, 09.
    8. Kyle Margaret, 2011. "Strategic Responses to Parallel Trade," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(2), pages 1-34, January.
    9. Nina Pavcnik, 2002. "Do Pharmaceutical Prices Respond to Potential Patient Out-of-Pocket Expenses?," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 469-487, Autumn.
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