Price Regulation and Parallel Imports of Pharmaceuticals

41 Pages Posted: 15 Aug 2015

See all articles by Kurt Richard Brekke

Kurt Richard Brekke

Norwegian School of Economics (NHH) - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Tor Helge Holmas

University of Bergen - Department of Economics

Odd Rune Straume

University of Minho - Economic Policies Research Unit (NIPE); CESifo (Center for Economic Studies and Ifo Institute)

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Date Written: August 13, 2015

Abstract

This paper studies the effects of price regulation and parallel imports in the on-patent pharmaceutical market. In a theory model where the producer price is subject to bargaining between the brand-name producer and a distributor, we show that the effects of stricter price regulation crucially depend on whether the producer faces competition from parallel imports. While parallel imports improve the bargaining position of the distributor, price regulation counteracts this effect and may even be pro.table for the producer. We test the implications of our model on a unique dataset with information on sales and prices at both producer and retail level for 165 substances over four years (2004-7). We show that stricter price regulation reduces competition from parallel imports, and has no (strictly negative) effect on producer profits in the presence (absence) of parallel imports. Our results suggest that price regulation might improve static efficiency without being harmful for dynamic efficiency in the presence of parallel imports.

Keywords: pharmaceutical market, price regulation, parallel imports

JEL Classification: I110, I180, L130, L510, L650

Suggested Citation

Brekke, Kurt Richard and Holmas, Tor Helge and Straume, Odd Rune, Price Regulation and Parallel Imports of Pharmaceuticals (August 13, 2015). CESifo Working Paper Series No. 5469, Available at SSRN: https://ssrn.com/abstract=2643409

Kurt Richard Brekke (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Tor Helge Holmas

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway
+47 55589238 (Phone)
+47 55589210 (Fax)

HOME PAGE: http://www.econ.uib.no/stab/torHelge.html

Odd Rune Straume

University of Minho - Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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