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Pharmaceutical regulation at the wholesale level and parallel trade

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  • Birg, Laura

Abstract

This paper studies the effect of pharmaceutical regulation at the wholesale level, if markets are integrated by parallel trade, i.e. trade outside the manufacturer´s authorized distribution channel. In particular, maximum wholesale margins, a restriction of pricing by the intermediary, and mandatory rebates, a restriction of the pricing by the manufacturer, are analyzed with respect to their effect on drug prices, quantities, and public pharmaceutical expenditure. Maximum wholesale margins enhance the manufacturer´s ability to reduce competition from parallel trade in the destination country by increasing wholesale prices. In a symmetric equilibrium, maximum wholesale margins of both countries partly offset each other. Mandatory rebates may be a policy alternative, as they exhibit a reinforcing effect with respect to drug prices. --

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Bibliographic Info

Paper provided by University of Goettingen, Department of Economics in its series Center for European, Governance and Economic Development Research Discussion Papers with number 180.

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Date of creation: 2013
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Handle: RePEc:zbw:cegedp:180

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Web page: http://www.cege.wiso.uni-goettingen.de/
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Keywords: parallel trade; regulation; maximum markups; spillovers; mandatory rebates;

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  1. Ganslandt, Mattias & Maskus, Keith E., 2007. "Vertical distribution, parallel trade, and price divergence in integrated markets," European Economic Review, Elsevier, vol. 51(4), pages 943-970, May.
  2. Miklós-Thal, Jeanine & Rey, Patrick & Vergé, Thibaud, 2010. "Vertical relations," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 345-349, July.
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