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Reference Pricing and Parallel Imports: Evidence from Germany

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  • Birg, Laura

Abstract

I study the effect of reference pricing on competition by parallel imports, in particular the market share of parallel imports and the number of parallel traders. First, I analyze the effect of reference pricing on competition by parallel imports in a vertical differentiation model with a locally sourced version and a parallel import offered by n identical parallel traders. Second, I explore the effect of reference pricing on competition by parallel imports using a dataset with prescription drugs with competition from parallel imports. Both model and estimation results suggest that the introduction of reference pricing inreases the market share of the parallel import and the number of parallel traders, while a decrease in the reference price decreases the market share of the parallel import and the number of parallel traders.

Suggested Citation

  • Birg, Laura, 2019. "Reference Pricing and Parallel Imports: Evidence from Germany," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203666, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc19:203666
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    References listed on IDEAS

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    1. Kaiser, Ulrich & Mendez, Susan J. & Rønde, Thomas & Ullrich, Hannes, 2014. "Regulation of pharmaceutical prices: Evidence from a reference price reform in Denmark," Journal of Health Economics, Elsevier, vol. 36(C), pages 174-187.
    2. Brekke, Kurt R. & Canta, Chiara & Straume, Odd Rune, 2015. "Does Reference Pricing Drive Out Generic Competition in Pharmaceutical Markets? Evidence from a Policy Reform," Discussion Paper Series in Economics 11/2015, Norwegian School of Economics, Department of Economics.
    3. repec:nip:nipewp:06/2015 is not listed on IDEAS
    4. 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.
    5. Nina Pavcnik, 2002. "Do Pharmaceutical Prices Respond to Potential Patient Out-of-Pocket Expenses?," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 469-487, Autumn.
    6. Giuseppe Carone & Christoph Schwierz & Ana Xavier, 2012. "Cost-containment policies in public pharmaceutical spending in the EU," European Economy - Economic Papers 2008 - 2015 461, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    7. Dag Dalen & Steinar Strøm & Tonje Haabeth, 2006. "Price regulation and generic competition in the pharmaceutical market," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 7(3), pages 204-211, September.
    8. Thomas Aronsson & Mats Bergman & Niklas Rudholm, 2001. "The Impact of Generic Drug Competition on Brand Name Market Shares – Evidence from Micro Data," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 19(4), pages 423-433, December.
    9. Izabela Jelovac & Catalina Bordoy, 2005. "Pricing and Welfare Implications of Parallel Imports in the Pharmaceutical Industry," International Journal of Health Economics and Management, Springer, vol. 5(1), pages 5-21, January.
    10. Ganslandt, Mattias & Maskus, Keith E., 2004. "Parallel imports and the pricing of pharmaceutical products: evidence from the European Union," Journal of Health Economics, Elsevier, vol. 23(5), pages 1035-1057, September.
    11. Birg, Laura, 2013. "Pharmaceutical cost-sharing systems and savings for health care systems from parallel trade," University of Göttingen Working Papers in Economics 179, University of Goettingen, Department of Economics.
    12. Herr, Annika & Stühmeier, Torben & Wenzel, Tobias, 2014. "Reference pricing and cost-sharing: Theory and evidence on German off-patent drugs," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100556, Verein für Socialpolitik / German Economic Association.
    13. Joan Costa-Font, 2016. "Is medicines parallel trade ‘regulatory arbitrage’?," International Journal of Health Economics and Management, Springer, vol. 16(4), pages 321-336, December.
    14. Iván Moreno-Torres & Jaume Puig-Junoy & Joan-Ramon Borrell, 2009. "Generic Entry into the Regulated Spanish Pharmaceutical Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 34(4), pages 373-388, June.
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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. Laura Birg, 2023. "Parallel imports under a manufacturer rebate and a price freeze: Evidence from Germany," Health Economics, John Wiley & Sons, Ltd., vol. 32(2), pages 302-323, February.
    3. 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

    reference pricing; parallel imports; pharmaceutical regulation;
    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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