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Parallel Imports of Pharmaceutical Products in the European Union

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  • Ganslandt, Mattias

    ()
    (The Research Institute of Industrial Economics)

  • Maskus, Keith E.

    ()
    (Department of Economics)

Abstract

We study the effects of parallel trade in the pharmaceutical industry. We develop a model in which an original manufacturer competes in its home market with parallel-importing firms. The theoretical analysis results in two key hypotheses. First, if the potential for parallel imports is unlimited, the manufacturer chooses deterrence and international prices converge. Second, with endogenously limited arbitrage the manufacturing firm accommodates and the price in the home market falls as the volume of parallel trade rises. Simple empirical tests favor the accommodation hypothesis with a time lag. Using data from Sweden we find that the prices of drugs subject to competition from parallel imports increased less than other drugs during the period 1995-1998. Approximately 3/4 of this effect on be attributed to lower prices of parallel imports and 1/4 to lower prices charged by the manufacturing firm. Econometric analysis find that rents to parallel importers (or resource costs in parallel trade) could be more than the gain to consumers from lower prices.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 546.

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Length: 27 pages
Date of creation: 16 Feb 2001
Date of revision:
Handle: RePEc:hhs:iuiwop:0546

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Keywords: Parallel Imports; International Arbitrage; Drug Pricing;

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References

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  1. Ganslandt, Mattias & Maskus, Keith E., 2001. "Parallel imports of pharmaceutical products in the European Union," Policy Research Working Paper Series 2630, The World Bank.
  2. Klepper, Gernot, 1992. "Pharmaceuticals - Who's Afraid of `1992'?," CEPR Discussion Papers 675, C.E.P.R. Discussion Papers.
  3. Patricia M. Danzon, 1998. "The Economics of Parallel Trade," PharmacoEconomics, Springer Healthcare | Adis, vol. 13(3), pages 293-304.
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Cited by:
  1. 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.
  2. Ganslandt, Mattias & Maskus, Keith E., 2001. "Parallel imports of pharmaceutical products in the European Union," Policy Research Working Paper Series 2630, The World Bank.
  3. Richard Friberg, 2003. "Common Currency, Common Market?," IEHAS Discussion Papers 0305, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  4. Steve Thompson, 2009. "Grey Power: An Empirical Investigation of the Impact of Parallel Imports on Market Prices," Journal of Industry, Competition and Trade, Springer, vol. 9(3), pages 219-232, September.
  5. Shen Guo & Bin Hu & Hai Zhong, 2013. "Impact of parallel trade on pharmaceutical firm’s profits: rise or fall?," The European Journal of Health Economics, Springer, vol. 14(2), pages 345-355, April.
  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, vol. 5(1), pages 5-21, January.
  7. Kristina M. Lybecker, 2008. "Keeping it real: anticounterfeiting strategies in the pharmaceutical industry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(5), pages 389-405.
  8. Bordoy,Catalina & Jelovac,Izabela, 2003. "Pricing and Welfare of Parallel Imports in the Pharmaceutical Industry," Research Memorandum 004, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  9. Margaret K. Kyle, 2007. "Strategic Responses to Parallel Trade," NBER Working Papers 12968, National Bureau of Economic Research, Inc.
  10. Grossman, Gene & Lai, Edwin, 2006. "Parallel Imports and Price Controls," CEPR Discussion Papers 5779, C.E.P.R. Discussion Papers.
  11. Valletti, Tommaso M., 2006. "Differential pricing, parallel trade, and the incentive to invest," Journal of International Economics, Elsevier, vol. 70(1), pages 314-324, September.
  12. Stähler, Frank & Maskus, Keith, 2013. "Retailers as Agents and the Absence of Parallel Trade," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79737, Verein für Socialpolitik / German Economic Association.

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