Should the U.S. Allow Prescription Drug Reimports from Canada?

Univ. of Alabama Economics Working Paper No. 01-01-04

17 Pages Posted: 31 Jan 2001

See all articles by Paul Pecorino

Paul Pecorino

University of Alabama - Department of Economics, Finance and Legal Studies

Multiple version iconThere are 2 versions of this paper

Date Written: January 2001

Abstract

As a result of public outrage over lower prescription drug prices in Canada, Congress passed legislation that would allow these drugs to be imported into the United States. The lower Canadian prices reflect price regulation. Opponents of allowing these imports have argued that the U.S. will import Canadian price controls and that profits of pharmaceutical companies will be hurt. In this paper, a model is developed in which a good sold in the foreign country is subject to a negotiated price which is determined in a Nash Bargaining game. When imports back into the home country are allowed, this negotiated price also becomes the domestic price. This causes the home firm to make fewer price concession in the Nash Bargaining game. When the example of linear demand is analyzed, it is found that home firm profits are always higher when reimports are allowed.

Keywords: prescription drug reimports, price regulation, Canada

JEL Classification: F1, I1

Suggested Citation

Pecorino, Paul, Should the U.S. Allow Prescription Drug Reimports from Canada? (January 2001). Univ. of Alabama Economics Working Paper No. 01-01-04, Available at SSRN: https://ssrn.com/abstract=258289 or http://dx.doi.org/10.2139/ssrn.258289

Paul Pecorino (Contact Author)

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

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