The effect of pharmacies’ right to negotiate discounts on the market share of parallel imported pharmaceuticals
The market share for parallel imports when pharmacies can negotiate discounts with parallel traders and sellers of locally sourced products is analyzed both theoretically and empirically. The theoretical model shows that, with discount negotiations, pharmacies will sell locally sourced products to all consumers that prefer these or are indifferent between these and parallel imported products. The explanation is that the parallel traders have cost disadvantages because of their repacking and trading costs. Sellers of locally sourced products will therefore always underbid the marginal prices of parallel traders and this gives pharmacies an incentive to sell locally sourced products. The empirical results show that a reform allowing discount negotiations reduced the market share for parallel imports by about 11 percentage points to reach 31%. The most important mechanism is that the reform has reduced the probability that pharmacies offer consumers cheaper parallel imported substitutes.
|Date of creation:||07 Nov 2012|
|Date of revision:|
|Contact details of provider:|| Postal: HUI Research, Regeringsgatan 60, 103 29 Stockholm, Sweden|
Phone: +46 (0)8 762 72 80
Fax: +46 (0)8 679 76 06
Web page: http://www.hui.se/
More information through EDIRC
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.:
- Leibowitz, Arleen & Manning, Willard G. & Newhouse, Joseph P., 1985. "The demand for prescription drugs as a function of cost-sharing," Social Science & Medicine, Elsevier, vol. 21(10), pages 1063-1069, January.
- Maskus, Keith E. & Yongmin Chen, 2000.
"Vertical price control and parallel imports - theory and evidence,"
Policy Research Working Paper Series
2461, The World Bank.
- Keith E. Maskus & Yongmin Chen, 2004. "Vertical Price Control and Parallel Imports: Theory and Evidence," Review of International Economics, Wiley Blackwell, vol. 12(4), pages 551-570, 09.
- Kurt R. Brekke & Tor Helge Holmås & Odd Rune Straume, 2010.
"Margins and Market Shares:Pharmacy Incentives for Generic Substitution,"
NIPE Working Papers
20/2010, NIPE - Universidade do Minho.
- Brekke, Kurt Richard & Holmås, Tor Helge & Straume, Odd Rune, 2013. "Margins and market shares: Pharmacy incentives for generic substitution," European Economic Review, Elsevier, vol. 61(C), pages 116-131.
- Brekke, Kurt Richard & Holmås, Tor Helge & Straume, Odd Rune, 2010. "Margins and Market Shares: Pharmacy Incentives for Generic Substitution," Discussion Paper Series in Economics 18/2010, Department of Economics, Norwegian School of Economics.
- Kurt R. Brekke & Tor Helge Holmås & Odd Rune Straume, 2012. "Margins and Market Shares: Pharmacy Incentives for Generic Substitution," CESifo Working Paper Series 4055, CESifo Group Munich.
- Panos Kanavos & Joan Costa-Font, 2005. "Pharmaceutical parallel trade in Europe: stakeholder and competition effects," Economic Policy, CEPR;CES;MSH, vol. 20(44), pages 751-798, October.
- Jean-Pierre Dubé & Günter J. Hitsch & Peter E. Rossi, 2009.
"State Dependence and Alternative Explanations for Consumer Inertia,"
NBER Working Papers
14912, National Bureau of Economic Research, Inc.
- Jean-Pierre Dubé & Günter J. Hitsch & Peter E. Rossi, 2010. "State dependence and alternative explanations for consumer inertia," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 417-445.
- Judith K. Hellerstein, 1998. "The Importance of the Physician in the Generic Versus Trade-Name Prescription Decision," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 108-136, Spring.
- Kyle Margaret, 2011.
"Strategic Responses to Parallel Trade,"
The B.E. Journal of Economic Analysis & Policy,
De Gruyter, vol. 11(2), pages 1-34, January.
- Nina Pavcnik, 2002. "Do Pharmaceutical Prices Respond to Potential Patient Out-of-Pocket Expenses?," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 469-487, Autumn.
- Ching, Andrew, 2008.
"Consumer Learning and Heterogeneity: Dynamics of Demand for Prescription Drugs after Patent Expiration,"
7265, University Library of Munich, Germany.
- Ching, Andrew T., 2010. "Consumer learning and heterogeneity: Dynamics of demand for prescription drugs after patent expiration," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 619-638, November.
- Granlund, David, 2009. "Are private physicians more likely to veto generic substitution of prescribed pharmaceuticals?," Social Science & Medicine, Elsevier, vol. 69(11), pages 1643-1650, December.
- Ganslandt, Mattias & Maskus, Keith E., 2004.
"Parallel Import and the Pricing of Pharmaceutical Products: Evidence from the European Union,"
Working Paper Series
622, Research Institute of Industrial Economics.
- 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.
- Izabela Jelovac & Catalina Bordoy, 2005. "Pricing and Welfare Implications of Parallel Imports in the Pharmaceutical Industry," International Journal of Health Economics and Management, Springer, vol. 5(1), pages 5-21, January.
- Yongmin Chen & Keith Maskus, 2005. "Vertical Pricing and Parallel Imports," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 14(1), pages 1-18.
- David Granlund & Niklas Rudholm, 2012. "The Prescribing Physician’s Influence on Consumer Choice Between Medically Equivalent Pharmaceuticals," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 41(3), pages 207-222, November.
- Lundin, Douglas, 2000. "Moral hazard in physician prescription behavior," Journal of Health Economics, Elsevier, vol. 19(5), pages 639-662, September.
- Granlund, David & Köksal , Miyase Yesim, 2011. "Parallel Imports and Mandatory Substitution Reform - A Kick or A Muff for Price Competition in Pharmaceuticals?," Umeå Economic Studies 824, Umeå University, Department of Economics.
- Pecorino, Paul, 2002. "Should the US allow prescription drug reimports from Canada?," Journal of Health Economics, Elsevier, vol. 21(4), pages 699-708, July.
- Granlund, David, 2010. "Price and welfare effects of a pharmaceutical substitution reform," Journal of Health Economics, Elsevier, vol. 29(6), pages 856-865, December.
- David Granlund & Niklas Rudholm, 2011. "Consumer Information and Pharmaceutical Prices: Theory and Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 73(2), pages 230-254, 04.
When requesting a correction, please mention this item's handle: RePEc:hhs:huiwps:0075. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Helena Nilsson)
If references are entirely missing, you can add them using this form.