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Pharmaceutical Regulation under Market Integration through Parallel Trade

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  • Birg, Laura
Abstract
In this paper, I study the effect of parallel trade (cross‐border resale of goods without the authorization of the manufacturer) on pharmaceutical regulation. Governments may restrict prices directly (price caps) or limit third‐party payer reimbursement for the drug (reimbursement limits). I find that parallel trade may relax regulation in the source country of parallel imports under both instruments and intensify regulation in the destination country under a reimbursement limit. I also find that parallel trade may change regulatory preferences: under no parallel trade, both the source and destination country set price caps, and under parallel trade, the source country sets a price cap but the destination country sets a reimbursement limit, thereby enforcing a higher price cap in the South. This implies that drug prices are higher under parallel trade in both source and destination countries. Réglementation pharmaceutique dans le cadre de l'intégration du marché par le commerce parallèle. Dans cet article, j'étudie l'effet du commerce parallèle (revente transfrontalière de biens sans l'autorisation du fabricant) sur la réglementation pharmaceutique. Les gouvernements peuvent restreindre les prix directement (plafonnement des prix) ou limiter le remboursement du médicament par les tiers payeurs (limite de remboursement). Je constate que le commerce parallèle peut assouplir la réglementation dans le pays d'origine des importations parallèles avec les deux instruments et intensifier la réglementation dans le pays de destination avec une limite de remboursement. Je constate également que le commerce parallèle peut modifier les préférences réglementaires : en l'absence de commerce parallèle, le pays d'origine et le pays de destination fixent tous deux des plafonds de prix. Dans le cadre du commerce parallèle, le pays d'origine fixe un plafond de prix, mais le pays de destination fixe une limite de remboursement, imposant ainsi un plafond de prix plus élevé en aval. Cela
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Birg, Laura, 2022. "Pharmaceutical Regulation under Market Integration through Parallel Trade," VfS Annual Conference 2022 (Basel): Big Data in Economics 264128, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc22:264128
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    References listed on IDEAS

    as
    1. Bennato, Anna Rita & Valletti, Tommaso, 2014. "Pharmaceutical innovation and parallel trade," International Journal of Industrial Organization, Elsevier, vol. 33(C), pages 83-92.
    2. Patricia M. Danzon & Y. Richard Wang & Liang Wang, 2005. "The impact of price regulation on the launch delay of new drugs—evidence from twenty‐five major markets in the 1990s," Health Economics, John Wiley & Sons, Ltd., vol. 14(3), pages 269-292, March.
    3. Pierre Dubois & Morten Sæthre, 2020. "On the Effect of Parallel Trade on Manufacturers' and Retailers' Profits in the Pharmaceutical Sector," Econometrica, Econometric Society, vol. 88(6), pages 2503-2545, November.
    4. Panos Kanavos & Joan Costa-Font, 2005. "Pharmaceutical parallel trade in Europe: stakeholder and competition effects [‘First report (final) to the Committee on International Trade Law of the International Law Association on the subject o," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 20(44), pages 758-798.
    5. repec:oup:ecpoli:v:20:y:2005:i:44:p:751-798 is not listed on IDEAS
    6. Tomaso Duso & Annika Herr & Moritz Suppliet, 2014. "The Welfare Impact Of Parallel Imports: A Structural Approach Applied To The German Market For Oral Anti‐Diabetics," Health Economics, John Wiley & Sons, Ltd., vol. 23(9), pages 1036-1057, September.
    7. Brekke, Kurt R. & Holmas, Tor Helge & Straume, Odd Rune, 2011. "Reference pricing, competition, and pharmaceutical expenditures: Theory and evidence from a natural experiment," Journal of Public Economics, Elsevier, vol. 95(7), pages 624-638.
    8. Costa-Font, Joan & McGuire, Alistair & Varol, Nebibe, 2014. "Price regulation and relative delays in generic drug adoption," Journal of Health Economics, Elsevier, vol. 38(C), pages 1-9.
    9. 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.
    10. Brekke, Kurt R. & Holmås, Tor Helge & Straume, Odd Rune, 2015. "Price regulation and parallel imports of pharmaceuticals," Journal of Public Economics, Elsevier, vol. 129(C), pages 92-105.
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    12. Ernst R. Berndt & Joseph P. Newhouse, 2010. "Pricing and Reimbursement in U.S. Pharmaceutical Markets," NBER Working Papers 16297, National Bureau of Economic Research, Inc.
    13. Santanu Roy & Kamal Saggi, 2023. "Equilibrium parallel import policies and international market structure," World Scientific Book Chapters, in: Kamal Saggi (ed.), Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy, chapter 15, pages 349-363, World Scientific Publishing Co. Pte. Ltd..
    14. Nicolas Houy & Izabela Jelovac, 2019. "Comparing approval procedures for new drugs," The World Economy, Wiley Blackwell, vol. 42(5), pages 1598-1619, May.
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    16. Laura Birg, 2023. "Parallel imports under a manufacturer rebate and a price freeze: Evidence from Germany," Health Economics, John Wiley & Sons, Ltd., vol. 32(2), pages 302-323, February.
    17. Patricia M. Danzon, 2018. "Differential Pricing of Pharmaceuticals: Theory, Evidence and Emerging Issues," PharmacoEconomics, Springer, vol. 36(12), pages 1395-1405, December.
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    21. David Granlund & Miyase Koksal-Ayhan, 2015. "Parallel imports and a mandatory substitution reform: a kick or a muff for price competition in pharmaceuticals?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(9), pages 969-983, December.
    22. David Granlund, 2022. "The Price Effects of Competition from Parallel Imports and Therapeutic Alternatives: Using Dynamic Models to Estimate the Causal Effect on the Extensive and Intensive Margins," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(1), pages 63-92, February.
    23. Pecorino, Paul, 2002. "Should the US allow prescription drug reimports from Canada?," Journal of Health Economics, Elsevier, vol. 21(4), pages 699-708, July.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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