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Externalities of national pharmaceutical policy when markets are integrated through parallel trade

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  • Birg, Laura

Abstract

This paper studies externalities of nationally determined cost-sharing systems, in particular coinsurance rates (patients pay a percentage of the price), under pharmaceutical parallel trade in a two-country model with a vertical distributor relationship. Parallel trade generates a price-decreasing competition effect in the destination country and a price-increasing double marginalization effect in the source country. An increase of the coinsurance rates in the destination country of the parallel import mitigates the double marginalization effect in the source country. An increase of the coinsurance rate in the source country reinforces the competition effect in the destination country. This may be a case for policy coordination in the European Union.

Suggested Citation

  • Birg, Laura, 2013. "Externalities of national pharmaceutical policy when markets are integrated through parallel trade," Center for European, Governance and Economic Development Research Discussion Papers 178, University of Goettingen, Department of Economics.
  • Handle: RePEc:zbw:cegedp:178
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    References listed on IDEAS

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    1. Szymanski, Stefan & Valletti, Tommaso, 2005. "Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis," CEPR Discussion Papers 5022, C.E.P.R. Discussion Papers.
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    More about this item

    Keywords

    externalities; spillovers; parallel trade; cost-sharing; coinsurance rates;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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