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Price Regulation and Parallel Imports of Pharmaceuticals

Author

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  • Kurt R. Brekke
  • Tor Helge Holmås
  • Odd Rune Straume

Abstract

This paper studies the effects of price regulation and parallel imports in the on-patent pharmaceutical market. In a theory model where the producer price is subject to bargaining between the brand-name producer and a distributor, we show that the effects of stricter price regulation crucially depend on whether the producer faces competition from parallel imports. While parallel imports improve the bargaining position of the distributor, price regulation counteracts this effect and may even be pro.table for the producer. We test the implications of our model on a unique dataset with information on sales and prices at both producer and retail level for 165 substances over four years (2004-7). We show that stricter price regulation reduces competition from parallel imports, and has no (strictly negative) effect on producer profits in the presence (absence) of parallel imports. Our results suggest that price regulation might improve static efficiency without being harmful for dynamic e¢ ciency in the presence of parallel imports.

Suggested Citation

  • Kurt R. Brekke & Tor Helge Holmås & Odd Rune Straume, 2015. "Price Regulation and Parallel Imports of Pharmaceuticals," CESifo Working Paper Series 5469, CESifo.
    • Handle: RePEc:ces:ceswps:_5469
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Susan J. Méndez, 2018. "Parallel trade of pharmaceuticals: The Danish market for statins," Health Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 333-356, February.
    2. Sharat Ganapati & Rebecca McKibbin, 2019. "Non-Tariff Barriers and Bargaining in Generic Pharmaceuticals," Working Papers gueconwpa~18-18-23, Georgetown University, Department of Economics.
    3. Laura Birg, 2023. "Pharmaceutical regulation under market integration through parallel trade," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(4), pages 1322-1346, November.
    4. Pierre Dubois & Morten Sæthre, 2020. "On the Effect of Parallel Trade on Manufacturers' and Retailers' Profits in the Pharmaceutical Sector," Econometrica, Econometric Society, vol. 88(6), pages 2503-2545, November.
    5. Giorgio Matteucci & Pierfrancesco Reverberi, 2017. "Drug innovation, price controls, and parallel trade," International Journal of Health Economics and Management, Springer, vol. 17(2), pages 159-179, June.
    6. Birg, Laura, 2019. "Parallel imports and manufacturer rebates: Evidence from Germany," University of Göttingen Working Papers in Economics 363, University of Goettingen, Department of Economics.
    7. Tomasz Zaprutko & Dorota Kopciuch & Krzysztof Kus & Piotr Merks & Monika Nowicka & Izabela Augustyniak & Elżbieta Nowakowska, 2017. "Affordability of medicines in the European Union," PLOS ONE, Public Library of Science, vol. 12(2), pages 1-13, February.
    8. Hernández, Carlos Eduardo & Cantillo-Cleves, Santiago, 2024. "A toolkit for setting and evaluating price floors," Journal of Public Economics, Elsevier, vol. 232(C).
    9. Laura Birg, 2023. "Parallel imports under a manufacturer rebate and a price freeze: Evidence from Germany," Health Economics, John Wiley & Sons, Ltd., vol. 32(2), pages 302-323, February.
    10. David Granlund, 2022. "The Price Effects of Competition from Parallel Imports and Therapeutic Alternatives: Using Dynamic Models to Estimate the Causal Effect on the Extensive and Intensive Margins," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(1), pages 63-92, February.
    11. Birg, Laura, 2018. "Parallel Imports and Manufacturer Rebates," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181646, Verein für Socialpolitik / German Economic Association.
    12. Fabian Grünwald & Tom Stargardt, 2024. "Harmonizing regulatory market approval of products with high safety requirements: Evidence from the European pharmaceutical market," Health Economics, John Wiley & Sons, Ltd., vol. 33(7), pages 1546-1564, July.
    13. Dao-Zhi Zeng & Biyue Zhang, 2020. "Parallel imports in large developing countries," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 65(2), pages 509-525, October.

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    More about this item

    Keywords

    pharmaceutical market; price regulation; parallel imports;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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