Scandinavian Working Papers in Economics

HUI Working Papers,
HUI Research

No 59: EU Enlargement, Parallel Trade and Price Competition in Pharmaceuticals - What’s to Blame? Derogation or Perception?

David Granlund () and Miyase Yesim Köksal
Additional contact information
David Granlund: HUI Research, Postal: Regeringsgatan 60, 103 29 Stockholm, Sweden, 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, 405 30, Gothenburg, Sweden

Abstract: Given the cost of trade and availability of pharmaceuticals, the driving force for parallel trade is the price difference between the source (exporting) and the destination (importing) country. An increase in the price difference or in the availability of pharmaceuticals for parallel trade should increase price competition in the destination country. Using 2003-2007 data from Sweden we investigated whether EU enlargement in 2004, when new countries with low pharmaceutical prices joined the EU, increased competition from parallel imports. Drugs facing competition from parallel imports are found to have on average 17% to 21% lower prices than they would have had if they had never faced such competition. But, contrary to expectation, EU enlargement is not found to have increased this effect, which might be explained by derogations and changes in consumer perceptions of parallel imports.

Keywords: EU enlargement; parallel trade; pharmaceuticals; price competition

JEL-codes: I11; L51; L65

28 pages, March 27, 2012

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