Scandinavian Working Papers in Economics

HUI Working Papers,
HUI Research

No 49: Parallel Imports and Mandatory Substitution Reform - A Kick or A Muff for Price Competition in Pharmaceuticals?

David Granlund () and Miyase Yesim Köksal
Additional contact information
David Granlund: The Swedish Retail Institute (HUI), Postal: SE-103 29 Stockholm, Sweden; and Department of Economics, Umeå University, SE-901 87 Umeå, Sweden
Miyase Yesim Köksal: University of Gothenburg, Postal: Department of Economics, School of Business, Economics and Law, SE-405 30 Gothenburg, Sweden

Abstract: What has been the effect of competition from parallel imports on prices of locally-sourced onpatent drugs? Did the 2002 Swedish mandatory substitution reform increase this competition? To answer these questions, we carried out difference-in-differences estimation on monthly data for a panel of all on-patent prescription drugs sold in Sweden during the 40 months from January 2001 through April 2004. On average, facing competition from parallel imports caused a 15-17% fall in price. While the reform increased the effect of competition from parallel imports, it was only by 0.9%. The reform, however, did increase the effect of therapeutic competition by 1.6%.

Keywords: parallel imports; pharmaceutical drugs; price competition; reference pricing; therapeutic competition

JEL-codes: I11; L51; L65

32 pages, April 1, 2011

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