International Pricing Research Articles

Price Comparison in the European Pharmaceutical Market.

CONTACT: Sandra Ressl, MA IPF Institute for Pharmaeconomic Research Wolfengasse 4/7 1010 Vienna, Austria Email: sr@ipf-ac.at Web: www.ipf-ac.at Objectives Due to rising healtcare costs, stricter governmental cost containment measures like international price comparison and external reference pricing, the European pharmaceutical markets will lead to future challenges in pricing. Despite of the external reference pricing the pharmaceutical prices vary across the European countries. Thus, the aim of the analysis was to draw a comprehensive picture of the pharmaceutical price levels and consumption (expenditure per capita – based on ex-factory prices per Standard Units) of pharmaceuticals in Europe.

The Evolution of International Reference Pricing: An Analysis of 39 Countries.

To characterise country-level changes to international reference pricing (IRP) policy frameworks across 39 markets, and understand how countries amend this tool. Qualitative interviews were conducted with 50 stakeholders across 39 markets, representing 37 payers or payer influencers and 13 industry stakeholders. These interviews focused on country-level IRP methodology, both past and present. Extensive secondary research of government websites and existing literature was also conducted. A qualitative and semi-quantitative analysis of these findings was undertaken to identify key trends in how IRP has been modified as a policy tool since implementation. Of the markets considered, IRP has remained comparatively stable – in terms of both the countries comprising the reference basket and the underlying formula for determining the reference price remaining unchanged – in just under one-third of the 39 markets. In contrast, just over one-third of these markets have modified their IRP baskets to include one or more additional countries with the objective of lowering prices. A smaller number have made substantive changes to the IRP formula itself, notably with four markets transitioning from taking the average price of their basket as a reference to either taking the average of the three lowest or taking the lowest. IRP serves as a dynamic policy tool, changing to reflect individual country circumstances and broader policy reform over time. While a number of markets have maintained a stable IRP regime since inception, a larger number have made some changes, the most common being to add one or more markets to the reference basket. Although changes to IRP are mostly concentrated in Eastern European markets, as well as Western European markets most impacted by the recent economic crisis, the present study also suggests that there is considerable variation across geographies and time in how countries adapt their use of IRP.

Drug Approval Decision Times, International Reference Pricing and Strategic Launches of New Drugs

This paper analyzes how drug approval procedures influence the incentives of pharmaceutical firms to launch new drugs in the presence of international reference pricing. First, we show that the set of countries in which a firm commercializes a new drug is larger when countries do not approve this new drug simultaneously. We also show that a firm’s best response to international reference pricing is to never launch a new drug sequentially as long as the difference in drug approval times between countries is small enough. Furthermore, we show that a firm’s incentives to launch a new drug in one or another country are the same if the drug approval times are identical across countries or if the difference between approval times are small enough. However, we show that these incentives can change if the approval times differences across countries are large enough.

Transfer pricing: aligning the research agenda to organizational reality

Purpose – The purpose of this paper is to critically review the empirical transfer pricing literature as a means of determining the agenda for future research. Design/methodology/approach – The review is carried out primarily by searching databases, academic journals and books. Second, professional surveys are reviewed to inform the development of research ideas. Findings – The understanding and ability to explain international transfer pricing in practice remain limited despite a rapidly increasing tax regulatory pressure on multinational enterprises. One important explanatory factor is that accounting and tax research has not been integrated to a sufficient extent. As a consequence, rather isolated research streams and knowledge building have taken place, failing to leverage the synergies of a combined research approach. Research limitations/implications – A stronger emphasis on the outcome of specific transfer pricing system designs would improve the literature’s current status in terms of whether the objectives aimed at by the system are actually achieved. A new framework and promising research questions are proposed to guide future work on this issue. Practical implications – The proposed framework may serve as guidance for practitioners seeking to assess the performance of specific transfer pricing systems and potentially provide directions for refinement of current system designs when dysfunctional consequences are identified. Originality/value – Previous transfer pricing research has taken a rather isolated approach. This paper is an attempt to guide future transfer pricing research towards an inter-disciplinary approach.

Transfer Pricing Knowledge Management Systems

This article discusses transfer pricing knowledge management systems, a neglected topic in the international transfer pricing and tax risk management literature. Key concepts of knowledge and knowledge management systems are introduced, followed by descriptions of the individual components of a transfer pricing knowledge management system. Finally, a guiding framework is proposed for the management of transfer pricing knowledge.

Drug Launch Timing and International Reference Pricing.

This paper analyzes the timing decisions of pharmaceutical firms to launch a new drug in countries involved in international reference pricing. We show three important features of launch timing when all countries refer to the prices in all other countries and in all previous periods of time. First, there is no withdrawal of drugs in any country and in any period. Second, whenever the drug is sold in a country, it is also sold in all countries with larger willingness to pay. Third, there is no strict incentive to delay the launch of a drug in any country. We then show that the first and third results continue to hold when the countries only refer to the prices of a subset of all countries in a transitive way and in any period. We also show that the second result continues to hold when the reference is on the last period prices only. Last, we show that the seller's profits increase as the sets of reference countries decrease with respect to inclusion.

The Price Knowledge Paradox: Why Consumers Have Lower Confidence in, but Better Recall of Unfamiliar Prices

This paper introduces the price knowledge paradox: an effect where consumers have lower confidence in their price memory for unfamiliar (versus familiar) prices, but, in fact, have better recall of unfamiliar (versus familiar) prices. We propose that this effect is due to unfamiliar price formats being processed more intentionally, leading to their being better encoded, and accordingly, more accurately retrieved from memory. Familiar price formats, on the other hand, are processed less intentionally, leading to consumers being over confident in their memory for familiar prices. Results from a field experiment with French shoppers (n = 683) conducted 6 months prior to the introduction of the Euro, demonstrates that consumers exposed to prices in Euros are almost twice as likely to recall the exact price of the product as compared to those exposed to prices in French Francs, although only 69 % of those seeing Euro prices (versus 85 % in FFs) said they could recall the price—the price knowledge paradox. Importantly, these effects carry through to intentions to purchase. The theoretical contributions of the manner in which consumers’ process familiar versus unfamiliar price information has implications for international pricing managers and public authorities facing monetary changes across and within countries.

Is pairs trading profitable on China AH-share markets?

Using the daily data for 38 companies during the period of 2009–2013, this article examines the long-run equilibrium between the stock prices of firms dual listed on A-share market in China and H-share market in Hong Kong, and exploits the arbitrage opportunity for investors. We propose a simple self-financing trading strategy which is derived from the short-run disequilibrium price path. Our results demonstrate that cointegration and error-correction mechanism exist between the A-share and the H-share. In addition, our proposed trading strategy actually beats the markets and provides superior performance in terms of Sharp Ratio and value at risk statistics. Further analysis on international asset pricing model demonstrates that our trading strategy yields an average annualized excess return of about 17.6% when adjusted for the systematic risk.

TRADING BLOC EXPOSURE IN INTERNATIONAL ASSET PRICING: THE CASE OF AFTA, CER AND NAFTA

This paper shows that the resurgence of trade regionalism has a significant impact on stock market returns of the member countries in the ASEAN Free Trade Area (AFTA), Australia-New Zealand Closer Economic Relations Trade Arrangement (CER) and North American Free Trade Area (NAFTA). A trading bloc international capital asset pricing model (ICAPM) is proposed and we find that the trading bloc factor increases the explanatory power of the conventional ICAPM for AFTA and CER. Evidence indicates that returns of the markets in AFTA and CER are highly exposed to the trading bloc factor. At the same time, exposure to the global market is still significant, particularly for the more advanced markets of Singapore and Australia. The conventional ICAPM is still relevant for the large and leading world markets in NAFTA. The trade bloc factor, however, has minimal impact in influencing market returns of non-member countries. The findings of significant exposure to regional dynamics offer an explanation to why stock markets are generally segmented.

Stock Market Integration: Are Risk Premiums of International Assets Equal?

This paper studies previous research on capital market integration and applies a simple international capital asset pricing model by considering the incompleteness in market integration and heteroscedasticity of the market returns. When we disregarded those two factors, we found that stock markets were integrated and the law of one price on risk premiums prevails. However, when the factors were considered, the markets were just partially integrated.

Exchange Risk and Market Integration

We investigate the impact of currency factor on market integration. We compare integration indices estimated from international asset pricing models with and without real exchange risk. The theoretical expectation implies the integration measures should be similar when global currency premium and the sum of global and local currency premiums are small. Our empirical results support this proposition. We also examine the sensitivity of the Pukhthuatong and Roll (2009) R square to omitted currency factors. In general, currency risk does not affect the level and the dynamics of the integration measure except under crisis conditions.

Non-parametric and semi-parametric asset pricing: An application to the Colombian stock exchange

We estimate non-parametrical one-factor and three-factor international Capital Asset Pricing Models (CAPM) and find strong evidence for rejecting the linear CAPM specification. Furthermore, we find inconsistent linear betas for a series of stocks in the Colombian stock exchange (BVC), supporting the hypothesis of better and consistent fit of non-parametrical versions of the CAPM.

Bioenergy is a viable solution to BC's Wildland-Urban Interface fuels problem; however, a number of policy changes are needed first

We have an increasing wildfire risk to communities of the province that is not being effectively addressed by the current hazard reduction program. Existing planning and remediation efforts are a small fraction of what is required given the march of climate change, the steady accumulation of forest fuels in the WUI and the large number of affected communities. The greatest barrier to an adequate response is the high cost of initial and recurring treatments, dependent primarily on tax funds from senior governments, and the lack of a policy framework that makes it possible to earn offsetting revenues from remedial work. Continuing on this trajectory will bring the predictable results of increasingly frequent and increasingly severe interface fires. A solution to this impasse is a major departure from current policy and practice; it is an attempt to turn an economic barrier into an economic advantage by converting a fuel surplus from a costly burden to a commercially valuable energy source. Because the proposal affects the legislated jurisdictions of communities, the tenure rights of existing industry, the encouragement of a new energy industry, the revision of silvicultural requirements, the linked use of merchantable timber and lower value biomass, expanding the carbon offset regime and sensitivity to international timber pricing agreements it is a formidable challenge to our current forest administration. Such a bold transformation likely cannot be approached piecemeal nor can it be applied province-wide without practical trial.

Asia’s Stock Markets: Are There Crouching Tigers and Hidden Dragons?

Stock markets play a key role in corporate financing in Asia. However, despite their increasing importance in terms of size and cross-border investment activity, the region’s markets are reputed to be more “idiosyncratic” and less reliant on economic and corporate fundamentals in their pricing. Using a model that draws on international asset pricing and economic theory, as well as accounting literature, we find evidence of greater idiosyncratic influences in the pricing of Asia’s stock markets, compared to their G-7 counterparts, beyond the identified systematic factors and local fundamentals. We also show proof of a significant relationship between the strength of implementation of securities regulations and the “noise” in stock pricing, which suggests that improvements in the regulation of securities markets in Asia could enhance the role of stock markets as stable and reliable sources of financing into the future.

Greece’s Stock Market Integration with Southeast Europe

This paper analyzes the time-varying integration of the Greek stock market from a regional perspective by using a conditional version of the international capital asset pricing model (ICAPM) allowing for dynamic changes in the degree of market integration, regional market currency risk, and local market risk. We show that the prices of risk are extremely sensitive to major international economic and political events such as the different monetary and financial crises in Asian and Latin American countries in 1997, 1998, and 2001. In addition, we show that the level of market openness and development of the stock market satisfactorily explain the time-varying degree of Greek stock market integration.

Greece’s Stock Market Integration with Southeast Europe

This paper analyzes the time-varying integration of the Greek stock market from a regional perspective by using a conditional version of the international capital asset pricing model (ICAPM) allowing for dynamic changes in the degree of market integration, regional market currency risk, and local market risk. We show that the prices of risk are extremely sensitive to major international economic and political events such as the different monetary and financial crises in Asian and Latin American countries in 1997, 1998, and 2001. In addition, we show that the level of market openness and development of the stock market satisfactorily explain the time-varying degree of Greek stock market integration.

The determinants of regional stock market integration in middle east: A conditional ICAPM approach

Over recent years, several emerging market regions have actively taken part in globalisation movements and world market integration. However, the financial integration processes appear to vary over time, and differ considerably from one region to another. This paper investigates intra-regional integration in the Middle East region during the period 1996–2008 using an international conditional Capital Asset Pricing Model (ICAPM) version that allows for dynamic changes in the degree of regional market integration, global risk premium, currency risk premium and local market risk premium.Our findings show that inflation, exchange rate volatility, variations in interest rate spread and global market dividend yields are key intra-regional integration variables in the Middle East context. Moreover, despite the complex economic and political situation that characterises the Middle East, our results indicate that stock markets in this area are well integrated in the regional market.

Impact of taxation on international transfer pricing and offshoring decisions

A multinational company may move production to a foreign country to take advantage of low manufacturing cost, and/or experience tax savings. Transfer prices play an important and strategic role on income shifting by multinational companies. In this paper, we construct a framework for optimal decision making in global supply chains with uncertain and price-dependent demand, propose methods to improve global supply chain parties’ performance, and explore schemes to integrate global supply chains. The optimal pricing and offshoring decisions are investigated for different situations where the low foreign production cost and low foreign tax rate exist or only one of them is available. The case of low foreign tax rate without the advantage of low foreign production cost provides the most interesting findings that partial offshoring dominates when a certain threshold is met. In addition, the double marginalization is examined in decentralized global supply chains similar to the mechanism in newsvendor problems. Due to the existence of the tax jurisdiction, the double marginalization cannot be completely eliminated by coordinating schemes. Finally, the traditional buy back contract is found to be unable to coordinate global supply chains, while a modified sales sharing contract can improve the performance of the global supply chain.

Integration versus segmentation in Middle East North Africa Equity Market: Time variations and currency risk

This article investigates the dynamics of regional financial integration and its determinants in an international setting. We test a conditional version of the international capital asset pricing model (ICAPM) accounting for the deviations from purchasing power parity (PPP) as well as temporal variations in both regional and local sources of risk. Using data from seven major countries of the Middle East North Africa (MENA) region (Turkey, Israel, Egypt, Jordan, Syria, Kuwait and Tunisia), our results support the validity of ICAPM and indicate that the risk is regionally priced. Furthermore, we show that changes in the degree of regional stock market integration are explained principally by inflation, exchange rate volatility, rate spread variations, short-term interest rate and world market dividend yield.

Australias Integration Into The ASEAN-5 Region

This paper attempts to evaluate the time-varying integration of Australian stock market in ASEAN-5 region (ASEAN + Australia, Korea, China, India and Japan) by using a conditional version of the international capital asset pricing model (ICAPM) allowing for dynamic changes in the degree of market integration, regional market risk price, currency risk price and domestic market risk price. Main findings are as follows: i) the prices of risk in Australia are extremely sensitive to major international economic and political events such as the different monetary and financial crises in international financial market; ii) the level of market openness and development of the stock market satisfactorily explain the time-varying degree of Australian stock integration.