Is medicines parallel trade ‘regulatory arbitrage’?

Joan Costa-Font

International Journal of Health Economics and Management, 2016, vol. 16, issue 4, No 2, 336 pages

Abstract: Abstract Parallel trade (PT) is a phenomenon that takes place at the distribution level, when a patented product is diverted from the official distribution chain to another one where it competes as a parallel distributor. Although some research regards PT in Europe as a ‘common’ form of arbitrage, there are reasons to believe that it is a type of ‘regulatory arbitrage’ that does not necessarily produce equivalent welfare effects. We draw upon a unique dataset that contains source country records of parallel imported medicine sales to the Netherlands for one therapeutic group (statins), that accounts for 5 % of the market at the time of study and it faced no generic competition. We estimate precise differences in prices and statutory distribution margins for each source country/product and, examine whether they drive parallel import flows using a gravity specification and an instrumental variable strategy. Our findings reveal that parallel imports are driven by cross-country differences in statutory distribution margins in addition to price differences, consistently with the hypothesis of PT being a type of ‘regulatory arbitrage’.

Keywords: Parallel trade; Parallel imports; Regulatory arbitrage; Pharmaceuticals; Supply chain (search for similar items in EconPapers)
JEL-codes: I18 L51 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s10754-016-9199-z

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