The welfare impact of parallel imports: A structural approach applied to the German market for oral antidiabetics

Moritz Suppliet, Tomaso Duso, Annika Herr

Research output: Contribution to journalArticleScientificpeer-review

18 Citations (Scopus)

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 languageEnglish
Pages (from-to)1036–1057
Number of pages21
JournalHealth Economics
Volume23
Issue number9
DOIs
Publication statusPublished - Sep 2014
Externally publishedYes

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