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Parallel imports of hospital pharmaceuticals: An empirical analysis of price effects from parallel imports and the design of procurement procedures in the Danish hospital sector

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Abstract

We analyse pharmaceutical imports in the Danish hospital sector. In this market medicines are publicly tendered using first-price sealed-bid procurement auctions. We analyse whether parallel imports have an effect on pharmaceutical prices and whether the way tenders were organised matters for the competitive effect of parallel imports on prices. Our theoretical analysis shows that the design of the procurement rules affects both market structure and pharmaceutical prices. Parallel imports may induce price competition for patented medicines if tenders are organised in a first-price sealed–bid format. In addition splitting a national supply contract into several regional tenders increases parallel importers’ incentives to enter the market, but decrease original producers’ incentives to engage in price competition so that their net effect on pharmaceutical prices needs to be established empirically. We exploit a unique panel dataset containing contract prices of hospital medicines in Denmark between 2005 and 2009 to empirically analyse the effect of parallel imports on pharmaceutical prices and the role of the procurement rules for attracting parallel imports. Controlling for unobservable product characteristics using fixed effect estimation, parallel imports appear to have decreased pharmaceutical prices, but their effect on prices is smaller in regional tenders. Our results also support the conjecture that regional tenders increase parallel importers’ propensity to participate in the bidding process. Our results imply that the design of the procurement rules affect parallel importers’ propensity to participate in the bidding process and that centralising pharmaceutical procurement may not always lead to lower prices than decentralised regional procurement.

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  • Hostenkamp, Gisela & Kronborg, Christian & Arendt, Jacob Nielsen, 2012. "Parallel imports of hospital pharmaceuticals: An empirical analysis of price effects from parallel imports and the design of procurement procedures in the Danish hospital sector," Discussion Papers of Business and Economics 16/2012, University of Southern Denmark, Department of Business and Economics.
  • Handle: RePEc:hhs:sdueko:2012_016
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    References listed on IDEAS

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    1. 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.
    2. Stefan Szymanski & Tommaso Valletti, 2005. "Parallel trade, price discrimination, investment and price caps," Economic Policy, CEPR;CES;MSH, vol. 20(44), pages 705-749, October.
    3. 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.
    4. 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.
    5. Panos Kanavos & Sotiris Vandoros, 2010. "Competition in prescription drug markets: is parallel trade the answer?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(5), pages 325-338.
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    More about this item

    Keywords

    Parallel imports; hospital pharmaceuticals; procurement auctions; Denmark;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law

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