Abstract
We investigate the welfare impact of parallel imports using a large panel data set containing monthly information on sales, ex-factory prices, and further product characteristics for all 649 anti-diabetic drugs sold in Germany between 2004 and 2010. We estimate a two-stage nested logit model of demand and, based on an oligopolistic model of multi-product firms, we then recover the marginal costs and markups. We finally evaluate the effect of the parallel imports’ policy by calculating a counter-factual scenario without parallel trade. According to our estimates, parallel imports reduce the prices for patented drugs by 11 percent and do not have a significant effect on prices for generic drugs. This amounts to an increase in the demand-side surplus by €19m per year (or €130m in total) which is relatively small compared to the average annual market size of around €227m based on ex-factory prices. The variable profits for the manufacturers of original drugs from the German market are reduced by €18m (or 37%) per year when parallel trade is allowed, yet only one third of this difference is appropriated by the importers.
| Original language | English |
|---|---|
| Pages (from-to) | 1036–1057 |
| Number of pages | 21 |
| Journal | Health Economics |
| Volume | 23 |
| Issue number | 9 |
| DOIs | |
| Publication status | Published - Sept 2014 |
| Externally published | Yes |