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Is medicines parallel trade ‘regulatory arbitrage’?

Costa-i-Font, Joan (2015) Is medicines parallel trade ‘regulatory arbitrage’? CESifo working papers (5190). CESifo Group, Munich, Germany.

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Abstract

In the European Union, medicines are regulated products subject to both single market (e.g., regional exhaustion of property rights) and country specific health care regulations (e.g., medicines pricing). This gives rise to parallel trade (PT), a phenomenon that takes place when a patented product is diverted from the official distribution chain of one country to another parallel one where it competes with the official distribution chain. We argue that parallel trade of heavily regulated medicines conflicts with traditional sources of arbitrage (e.g., price and income differences) and instead is a form of ‘regulatory arbitrage’ that does not produce equivalent welfare effects. We draw upon a unique dataset that contains records of both origin and destination flows of parallel imported medicines to the Netherlands, for one therapeutic group (statins) that accounted for 5% of the market at the time of study and faced no generic competition. Our findings suggest that after controlling for country of origin (source) effects, parallel trade flows are primarily determined by medicines distribution chain regulation, and not by price differences in line with the hypothesis of ‘regulatory arbitrage’.

Item Type: Monograph (Working Paper)
Official URL: http://www.cesifo-group.de/ifoHome.html
Additional Information: © 2015 The Author
Divisions: European Institute
Social Policy
Centre for Economic Performance
Subjects: R Medicine > RA Public aspects of medicine > RA0421 Public health. Hygiene. Preventive Medicine
JEL classification: I - Health, Education, and Welfare > I1 - Health > I18 - Government Policy; Regulation; Public Health
L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation
Sets: Departments > European Institute
Departments > Social Policy
Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Research centres and groups > LSE Health and Social Care
Date Deposited: 18 Feb 2015 09:26
Last Modified: 15 Apr 2019 23:03
URI: http://eprints.lse.ac.uk/id/eprint/60963

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