Parallel Traders Research Articles

On the Effect of Parallel Trade on Manufacturers' and Retailers' Profits in the Pharmaceutical Sector

Differences in regulated pharmaceutical prices within the European Economic Area create arbitrage opportunities that pharmacy retailers can access through parallel imports. For prescription drugs under patent, parallel trade affects the sharing of profits among an innovating pharmaceutical company, retailers, and parallel traders. We develop a structural model of demand and supply in which retailers can choose the set of goods to sell, thus foreclosing consumers' access to less profitable drugs. This allows retailers to bargain and obtain lower wholesale prices from the manufacturer and parallel trader. With detailed transaction data from Norway, we identify a demand model with unobserved choice sets using retail‐side conditions for optimal assortment decisions of pharmacies. We find that retailer incentives play a significant role in fostering parallel trade penetration and that banning parallel imports would benefit manufacturers as well as prevent pharmacies from foreclosing the manufacturer's product. Finally, in the case of the statin market in Norway, we show that it would be possible to decrease spending and increase profits of the original manufacturer through lump sum transfers associated with a lower reimbursement price, thus decreasing price differentiation across countries.

EAEPC v. Commission: Final Curtain for the GSK Spain Saga on so-called ‘dual-pricing’ for medicines

Abstract Following the CoJ’s 2009 judgment in the so-called GSK ‘dual-pricing’ case, the umbrella association of parallel traders complained to the Commission and requested a re-opening of the case. The Commission rejected the complaint and the General Court has now upheld that decision.

Reference Pricing and Parallel Imports: Evidence from Germany

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 inrceases 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.

A Comparison of Game-Theoretic Models for Parallel Trade

Within the EU Single Market for medicines, differences in drug prices, regulations, and transaction costs may create, under suitable conditions, arbitrage opportunities well before patent expiration, giving an incentive to the occurrence of parallel trade. When this is permitted, parallel traders may obtain a profit from buying drugs in a country where prices are lower, then re-selling them in a country where prices are higher. This phenomenon may cause inefficiencies from a global welfare perspective, and reduce the manufacturers’ incentive to invest in Research and Development (R & D). Given this framework, in this paper, we investigate the efficiency (expressed in terms of the price of anarchy) of the subgame-perfect Nash equilibria associated with five dynamic noncooperative game-theoretic models for the parallel trade of pharmaceuticals. We also compare such models with regard to the manufacturer’s incentive to invest in R & D. More specifically, first we find in closed form the optimal value of the global welfare of two countries, which is obtained by solving a suitable quadratic optimization problem modeling the decision-making process of a global planner. Then, we use such a result to evaluate and compare the prices of anarchy of five games modeling the interaction between a manufacturer in the first country and a potential parallel trader in the second country. The first three games refer, respectively, to the cases of no parallel trade threat, parallel trade threat, and parallel trade occurrence at equilibrium. Then, we investigate two modifications of the third game, in which its transfer payment from the potential parallel trader to the manufacturer is, respectively, removed/determined by Nash bargaining. For completeness, we also consider a decision-theoretic model of no parallel trade threat. For what concerns the incentive for the manufacturer to invest in R & D, the results of our numerical comparison show that the decision-theoretic model of no parallel trade threat is always the one with the highest incentive, whereas the two game-theoretic models of parallel trade threat/occurrence that do not include the transfer payment provide typically the lowest incentives. Moreover, the latter two models have the highest prices of anarchy (i.e., their equilibria have the lowest efficiencies). From a policy-making perspective, improvements are obtained if suitable countermeasures are taken to help the manufacturer recover from the costs of R & D, such as the inclusion of a transfer payment in the model.

Bund-Länder-Arbeitsgruppe Arzneimittelfälschungen

In 2014, alarge number of falsified medicines of Italian origin had come to light. Because of the extent of the falsification, the situation that most of these falsified medicines had been traced back to thefts in Italy by criminal networks, and the necessity of actions by national and local authorities, an intensified exchange of information was essential, in addition to aprocess of coordination. Atask force for falsified medicines was established to optimize the flow of information among all parties involved and to coordinate the necessary measures.One result was the implementation of aprocedure for optimizing the exchange of information and for harmonisation of required measures on falsified medicines. In particular, this procedure covers situations in which there is no clear legal responsibility, and is now considered as part of the work of the authorities. In addition, adatabase has been established in which all pharmaceutical wholesalers located in Germany with avalid wholesale license are publicly accessible. As apreventive measure, information about known thefts will be forwarded to parallel traders and their associations. This is to avoid these products coming onto the market in Germany.

The European Falsified Medicines Directive in Poland: background, implementation and potential recommendations for pharmacists

By February 2019, the Polish pharmaceutical industry, community and hospital pharmacies, wholesalers and parallel traders must all comply with the EU-wide Falsified Medicines Directive (FMD) legislation (2011/62/EU), to ensure that...

The Effect of Pharmacies’ Right to Negotiate Discounts on the Market Share of Parallel Imported Pharmaceuticals

Abstract This paper analyzes how allowing pharmacies to negotiate discounts with parallel traders and producers affects the market share for parallel imports. Economic theory predicts that discount negotiations will promote products bought directly from the producers because producers have cost advantages, due to which they always underbid the marginal prices of parallel traders. A reform that allowed discount negotiations is found to reduce the market share for parallel imports by about 11 percentage points to reach 31%. The results clearly indicate that pharmacies have an important role in the choice between medically equivalent pharmaceuticals.

Dealing with IP matters in cross-border cases

‘A book may be good for nothing; or there may be only one thing in it worth knowing; are we to read it all through?’ (Samuel Johnson) This section is dedicated to the review of ideas, articles, books, films and other media. It will include replies (and rejoinders) to articles, the evaluation of new ideas or proposals, and reviews of books and articles both directly and indirectly related to intellectual property law. The past 15–20 years have witnessed a proliferation in cross-border disputes relating to the enforcement of intellectual property rights. Indeed, infringements of IP rights are increasingly international in scope. This is probably due to a mixture of concurrent factors such as the globalization of business and commerce, the increasing role of parallel traders, and the never-ending expansion of the internet and other communication technologies. On the contrary, IP rights are predominantly territorial and national in nature.1 It...

Manufacturing and Distribution Strategies, Distribution Channels, and Transaction Costs: The Case of Parallel Imported Automobiles

We examine how constraints on transnational corporations' official distribution channels, asset specificity, and bounded rationality of franchise dealers and parallel traders contribute to the sustainability of the parallel importation of automobiles. The manufacturing and distribution strategies employed by transnational corporations considerably add to the regional differences in the pricing and availability of specific models, as well as vehicle specifications. These necessary conditions enable opportunistic parallel traders to engage in arbitrage. The asset specificity of franchise dealers, bounded rationality, and opportunism of dealers and arbitrageurs sustain the parallel importation of automobiles. Copyright © 2012 John Wiley & Sons, Ltd.

Strategic Responses to Parallel Trade

Abstract High prices for patented pharmaceuticals have prompted many governments to consider allowing competition from “parallel imports,” or products first sold at lower prices in other countries. This paper examines how pharmaceutical firms have responded to changes in intellectual property rights and trade barriers that legalized parallel imports within the European Union (EU). The threat of arbitrage by parallel traders reduces the ability of firms to price discriminate across countries. Due to regulations on price and antitrust law on rationing supply, pharmaceutical firms may rely on non-price responses. Such responses include differentiation of products across countries and selective “culling” of product lines to reduce arbitrage opportunities, as well as raising arbitrageurs’ costs through choice of packaging. Using a dataset of drug prices and sales from 1993-2004 covering 30 countries, I find evidence that the behavior of pharmaceutical firms in the EU with respect to their product portfolios is consistent with attempts to reduce parallel trade. This may at least partially explain why parallel trade has not yet resulted in significant price convergence across EU countries. Accounting for non-price strategic responses may therefore be important in assessing the welfare effects of competition from parallel imports.

Parallel imports and the pricing of pharmaceutical products: evidence from the European Union

We consider policy issues regarding parallel imports (PIs) of brand-name pharmaceuticals in the European Union, where such trade is permitted. We develop a simple model in which an original manufacturer competes in its home market with PI firms. The model suggests that for small trade costs the original manufacturer will accommodate the import decisions of parallel traders and that the price in the home market falls as the volume of parallel imports rises. Using data from Sweden we find that the prices of drugs subject to competition from parallel imports fell relative to other drugs over the period 1994–1999. Econometric analysis finds that parallel imports significantly reduced manufacturing prices, by 12–19%. There is evidence that this effect increases with multiple PI entrants.

Is parallel trade in medicines compatible with the single European market?

For many years the varying methods of price control of medicines by national governments in the European Community (and elsewhere) have resulted in wide variations in prices. Parallel traders buy products in low pricing Community countries and sell them, generally relabelled or repackaged, in high pricing Community countries. This practice diverts sales revenue and profits from the manufacturers to the traders, distributors, pharmacists and, in some measure, to the sickness funds and to some patients. While parallel trade appeals to those who gain financially, its basis is a market distortion that poses a significant threat to the future of the research-based pharmaceutical industry.