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Is medicines parallel trade ‘regulatory arbitrage’?

Listed author(s):
  • Joan Costa-Font

    ()

    (London School of Economics and Political Science (LSE))

Abstract Parallel trade (PT) is a phenomenon that takes place at the distribution level, when a patented product is diverted from the official distribution chain to another one where it competes as a parallel distributor. Although some research regards PT in Europe as a ‘common’ form of arbitrage, there are reasons to believe that it is a type of ‘regulatory arbitrage’ that does not necessarily produce equivalent welfare effects. We draw upon a unique dataset that contains source country records of parallel imported medicine sales to the Netherlands for one therapeutic group (statins), that accounts for 5 % of the market at the time of study and it faced no generic competition. We estimate precise differences in prices and statutory distribution margins for each source country/product and, examine whether they drive parallel import flows using a gravity specification and an instrumental variable strategy. Our findings reveal that parallel imports are driven by cross-country differences in statutory distribution margins in addition to price differences, consistently with the hypothesis of PT being a type of ‘regulatory arbitrage’.

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File URL: http://link.springer.com/10.1007/s10754-016-9199-z
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Article provided by Springer in its journal International Journal of Health Economics and Management.

Volume (Year): 16 (2016)
Issue (Month): 4 (December)
Pages: 321-336

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Handle: RePEc:kap:ijhcfe:v:16:y:2016:i:4:d:10.1007_s10754-016-9199-z
DOI: 10.1007/s10754-016-9199-z
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  16. repec:fth:prinin:455 is not listed on IDEAS
  17. Egger, Peter, 2000. "A note on the proper econometric specification of the gravity equation," Economics Letters, Elsevier, vol. 66(1), pages 25-31, January.
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