Parallel Imports of Pharmaceutical Products in the European Union
The point of parallel imports of pharmaceuticals is arbitrage between countries with different prices. For several years, an important issue in the European Union (EU) has been the evident conflict between differing price regulations in the member...
| Main Authors: | , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/07/1551961/parallel-imports-pharmaceutical-products-european-union http://hdl.handle.net/10986/19584 |
| Summary: | The point of parallel imports of
pharmaceuticals is arbitrage between countries with
different prices. For several years, an important issue in
the European Union (EU) has been the evident conflict
between differing price regulations in the member states, on
the one hand, and the consequences of parallel trade, on the
other. In the EU, so long as the manufacturer has placed the
good on the market voluntarily, the principle of free
movement of goods allows individuals, or firms within the EU
to trade goods across borders, without the consent of the
producer. In this context, the authors study the effects of
parallel trade in the pharmaceutical industry. They develop
a model in which an original manufacturer competes in its
home market with parallel-importing firms. The two key
hypotheses in their theoretical analysis are these: First,
if the potential for parallel imports is unlimited, the
manufacturer chooses deterrence, and international prices
converge. Second, with endogenously limited arbitrage, the
manufacturing firm accommodates, and the price in the home
market falls as the volume of parallel trade rises. The
authors test their hypotheses on data from the Swedish
market for 1995-98. Before 1995, Sweden prohibited parallel
imports of pharmaceutical products, but entry into the EU,
on January 1, 1995, required Sweden to allow them. Simple
empirical tests favor the accommodation hypothesis with a
time lag. Using data from Sweden, the authors find that the
prices of drugs, subject to competition from parallel
imports increased less than those for other drugs between
1995 and 1998. Roughly, three-fourths of this effect can be
attributed to the lower prices of parallel imports, and
one-fourth to lower prices charged by the manufacturing
firm. Econometric analysis finds that rents to parallel
importers (or resource costs in parallel trade) could be
more than the gain to consumers from lower prices. |
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