Pharmaceutical Parallel Trade in Europe: Stakeholder and Competition Effects

47 Pages Posted: 6 Nov 2005

See all articles by Panos Kanavos

Panos Kanavos

London School of Economics & Political Science (LSE) - Department of Social Policy and Administration

Joan Costa-Font

London School of Economics & Political Science (LSE)

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Abstract

Pharmaceutical parallel trade in the European Union is a large and growing phenomenon, and hope has been expressed that it has the potential to reduce prices paid by health insurance and consumers and substantially to raise overall welfare. In this paper we examine the phenomenon empirically, using data on prices and volumes of individual imported products. We have found that the gains from parallel trade accrue mostly to the distribution chain rather than to health insurance and consumers. This is because in destination countries parallel traded drugs are priced just below originally sourced drugs. We also test to see whether parallel trade has a competition impact on prices in destination countries and find that it does not. Such competition effects as there are in pharmaceuticals come mainly from the presence of generics. Accordingly, instead of a convergence to the bottom in EU pharmaceutical prices, the evidence points at 'convergence to the top'. This is explained by the fact that drug prices are subjected to regulation in individual countries, and by the limited incentives of purchasers to respond to price differentials.

Suggested Citation

Kanavos, Panagiotis (Panos) G. and Costa-Font, Joan, Pharmaceutical Parallel Trade in Europe: Stakeholder and Competition Effects. Economic Policy, Vol. 20, No. 44, pp. 751-798, October 2005, Available at SSRN: https://ssrn.com/abstract=823089

Panagiotis (Panos) G. Kanavos (Contact Author)

London School of Economics & Political Science (LSE) - Department of Social Policy and Administration ( email )

Houghton Street
London, WC2A 2AE
England
0171 955 6802 (Phone)

Joan Costa-Font

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://https://joancostaifont.org/

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