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Pharmaceutical regulation at the wholesale level and parallel trade

Author

Listed:
  • Birg, Laura
Abstract
This paper studies the effect of pharmaceutical regulation at the wholesale level, if markets are integrated by parallel trade, i.e. trade outside the manufacturer´s authorized distribution channel. In particular, maximum wholesale margins, a restriction of pricing by the intermediary, and mandatory rebates, a restriction of the pricing by the manufacturer, are analyzed with respect to their effect on drug prices, quantities, and public pharmaceutical expenditure. Maximum wholesale margins enhance the manufacturer´s ability to reduce competition from parallel trade in the destination country by increasing wholesale prices. In a symmetric equilibrium, maximum wholesale margins of both countries partly offset each other. Mandatory rebates may be a policy alternative, as they exhibit a reinforcing effect with respect to drug prices.

Suggested Citation

  • Birg, Laura, 2013. "Pharmaceutical regulation at the wholesale level and parallel trade," University of Göttingen Working Papers in Economics 180, University of Goettingen, Department of Economics.
    • Handle: RePEc:zbw:cegedp:180
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    References listed on IDEAS

    as
    1. Yongmin Chen & Keith Maskus, 2005. "Vertical Pricing and Parallel Imports," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 14(1), pages 1-18.
    2. 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.
    3. Gene M. Grossman & Edwin L.‐C. Lai, 2008. "Parallel imports and price controls," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 378-402, June.
    4. Ganslandt, Mattias & Maskus, Keith E., 2007. "Vertical distribution, parallel trade, and price divergence in integrated markets," European Economic Review, Elsevier, vol. 51(4), pages 943-970, May.
    5. Miklós-Thal, Jeanine & Rey, Patrick & Vergé, Thibaud, 2010. "Vertical relations," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 345-349, July.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Birg, Laura, 2019. "Parallel imports and manufacturer rebates: Evidence from Germany," University of Göttingen Working Papers in Economics 363, University of Goettingen, Department of Economics.
    2. Birg, Laura, 2018. "Parallel Imports and Manufacturer Rebates," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181646, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    parallel trade; regulation; maximum markups; spillovers; mandatory rebates;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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