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Parallel Import and the Pricing of Pharmaceutical Products: Evidence from the European Union

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Author Info
Ganslandt, Mattias () (The Research Institute of Industrial Economics)
Maskus, Keith E. () (University of Colorado)

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Abstract

We consider policy issues regarding parallel imports (PIs) of brand-name pharmaceuticals in the European Union, where such trade is permitted. We develop a simple model in which an original manufacturer competes in its home market with PI firms. The model suggests that for small trade costs the original manufacturer will accommodate the import decisions of parallel traders and that the price in the home market falls as the volume of parallel imports rises. Using data from Sweden we find that the prices of drugs subject to competition from parallel imports fell relative to other drugs over the period 1994 - 1999. Econometric analysis finds that parallel imports significantly reduced manufacturing prices, by from 12 to 19 percent. There is evidence that this effect increases with multiple PI entrants.

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Publisher Info
Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 622.

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Length: 36 pages
Date of creation: 17 Feb 2004
Date of revision:
Publication status: Published in Journal of Health Economics, 2004, pages 1035-1057.
Handle: RePEc:hhs:iuiwop:0622

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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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Related research
Keywords: Parallel Imports; International Arbitrage; Drug Pricing; Pharmaceutical Products;

Other versions of this item:

Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Keith E. Maskus, 2000. "Parallel Imports," The World Economy, Blackwell Publishing, vol. 23(9), pages 1269-1284, 09. [Downloadable!] (restricted)
  2. Ganslandt, Mattias & Maskus, Keith E., 2001. "Parallel Imports of Pharmaceutical Products in the European Union," Working Paper Series 546, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  3. Richard G. Frank & David S. Salkever, 1997. "Generic Entry and the Pricing of Pharmaceuticals," NBER Working Papers 5306, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Z. John Lu & William S. Comanor, 1998. "Strategic Pricing Of New Pharmaceuticals," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 108-118, February. [Downloadable!] (restricted)
  5. Patricia M. Danzon, 1998. "The Economics of Parallel Trade," PharmacoEconomics, Wolters Kluwer Health | Adis, vol. 13(3), pages 293-304. [Downloadable!] (restricted)
  6. Pecorino, Paul, 2002. "Should the US allow prescription drug reimports from Canada?," Journal of Health Economics, Elsevier, vol. 21(4), pages 699-708, July. [Downloadable!] (restricted)
  7. Richard G. Frank & David S. Salkever, 1997. "Generic Entry and the Pricing of Pharmaceuticals," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 6(1), pages 75-90, 03. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Katherine Sauer, 2008. "A model of parallel imports of pharmaceuticals with endogenous price controls," Economics Bulletin, Economics Bulletin, vol. 6(36), pages 1-8. [Downloadable!]
  2. Alexander Heuer & Malwina Mejer & Jennifer Neuhaus, 2007. "The National Regulation of Pharmaceutical Markets and the Timing of New Drug Launches in Europe," Kiel Advanced Studies Working Papers 437, Kiel Institute for the World Economy. [Downloadable!]
  3. Richard Hornbeck, 2005. "Price Discrimination and Smuggling of AIDS Drugs," Topics in Economic Analysis & Policy, Berkeley Electronic Press, vol. 5(1), pages 1404-1404. [Downloadable!] (restricted)
  4. Katherine M. Sauer, 2008. "The quality of parallel imports," Economics Bulletin, Economics Bulletin, vol. 6(44), pages 1-10. [Downloadable!]
  5. Granlund, David & Rudholm, Niklas, 2008. "Consumer Loyalty in the Swedish Pharmaceuticals Market," HUI Working Papers 17, The Swedish Retail Institute (HUI). [Downloadable!]
  6. Joseph H. Golec & John A. Vernon, 2006. "European Pharmaceutical Price Regulation, Firm Profitability, and R&D Spending," NBER Working Papers 12676, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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