The Single Market and Pharmaceutical Industry in the European Union: Is There Any Evidence of Price Convergence?
Posted: 28 Jun 2007
During the last two decades, the European Union (EU) has experienced closer market integration through the removal of trade barriers, the establishment of a single market, and the reduction of exchange rate volatility. In addition, there have been several structural reforms in product markets designed to increase competition, monitor cross-country price differences and increase transparency. One anticipated effect of market integration is price convergence, because of the reduced potential for price discrimination across the EU. This paper explores market integration and price convergence in the European pharmaceutical market, which is the fifth largest industry in the EU. Since 1985, many EU directives have been adopted to achieve a single EU-wide pharmaceutical market, with the aim of enhancing the quality of life for European citizens and the European pharmaceutical industry's competitiveness and research and development capability. Using annual 1994-2003 IMS Health data from five EU countries on prices of drugs at the molecule level used to treat cardiovascular disease, this paper explains how the integration process has affected cross-country drug price dispersion in the EU. The results show evidence of price convergence in the pharmaceutical market, with long term price differences arising from country fixed effects.
Keywords: Market integration, European pharmaceutical market, unit root
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