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Pharmaceutical regulation at the wholesale level and parallel trade

Author

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  • Birg, Laura

Abstract

This paper studies the effect of pharmaceutical regulation at the wholesale level, if markets are integrated by parallel trade, i.e. trade outside the manufacturer´s authorized distribution channel. In particular, maximum wholesale margins, a restriction of pricing by the intermediary, and mandatory rebates, a restriction of the pricing by the manufacturer, are analyzed with respect to their effect on drug prices, quantities, and public pharmaceutical expenditure. Maximum wholesale margins enhance the manufacturer´s ability to reduce competition from parallel trade in the destination country by increasing wholesale prices. In a symmetric equilibrium, maximum wholesale margins of both countries partly offset each other. Mandatory rebates may be a policy alternative, as they exhibit a reinforcing effect with respect to drug prices.

Suggested Citation

  • Birg, Laura, 2013. "Pharmaceutical regulation at the wholesale level and parallel trade," Center for European, Governance and Economic Development Research Discussion Papers 180, University of Goettingen, Department of Economics.
  • Handle: RePEc:zbw:cegedp:180
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    File URL: https://www.econstor.eu/bitstream/10419/88600/1/774876263.pdf
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    References listed on IDEAS

    as
    1. Ganslandt, Mattias & Maskus, Keith E., 2007. "Vertical distribution, parallel trade, and price divergence in integrated markets," European Economic Review, Elsevier, vol. 51(4), pages 943-970, May.
    2. Miklós-Thal, Jeanine & Rey, Patrick & Vergé, Thibaud, 2010. "Vertical relations," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 345-349, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    parallel trade; regulation; maximum markups; spillovers; mandatory rebates;

    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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