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Some Unintended Consequences of Parallel Trade in Pharmaceuticals

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  • Giorgio Matteucci
  • Pierfrancesco Reverberi

Abstract

It is widely argued that international arbitrage, or parallel trade (PT), in patented drugs may increase consumer surplus in the relevant countries but at the expense of R&D investment. We show how the effects of PT depend on the vertical contract (linear pricing or dual pricing) between the manufacturer and the foreign licensee or distributor and on whether and how drug prices are regulated and reimbursed. We find that, contrary to what policy makers generally predict, we should be more concerned with the impact of PT on aggregate consumer surplus than on R&D investment. Copyright © 2014 John Wiley & Sons, Ltd.

Suggested Citation

  • Giorgio Matteucci & Pierfrancesco Reverberi, 2016. "Some Unintended Consequences of Parallel Trade in Pharmaceuticals," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 37(1), pages 50-61, January.
    • Handle: RePEc:wly:mgtdec:v:37:y:2016:i:1:p:50-61
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    1. Avenali, Alessandro & Bracaglia, Valentina & D'Alfonso, Tiziana & Reverberi, Pierfrancesco, 2018. "Strategic formation and welfare effects of airline-high speed rail agreements," Transportation Research Part B: Methodological, Elsevier, vol. 117(PA), pages 393-411.

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