Scandinavian Working Papers in Economics

HUI Working Papers,
HUI Research

No 75: The effect of pharmacies’ right to negotiate discounts on the market share of parallel imported pharmaceuticals

David Granlund ()
Additional contact information
David Granlund: HUI Research AB, Postal: The Swedish Research Institute of Trade (HUI), Regeringsgatan 60, 103 29 Stockholm, Sweden, and Department of Economics, Umeå University, 901 87 Umeå, Sweden

Abstract: The market share for parallel imports when pharmacies can negotiate discounts with parallel traders and sellers of locally sourced products is analyzed both theoretically and empirically. The theoretical model shows that, with discount negotiations, pharmacies will sell locally sourced products to all consumers that prefer these or are indifferent between these and parallel imported products. The explanation is that the parallel traders have cost disadvantages because of their repacking and trading costs. Sellers of locally sourced products will therefore always underbid the marginal prices of parallel traders and this gives pharmacies an incentive to sell locally sourced products. The empirical results show that a reform allowing discount negotiations reduced the market share for parallel imports by about 11 percentage points to reach 31%. The most important mechanism is that the reform has reduced the probability that pharmacies offer consumers cheaper parallel imported substitutes.

Keywords: Drugs; Margins; Parallel imports; Parallel trade; Pharmacies

JEL-codes: I11; I18; L13; L51; L65

34 pages, November 7, 2012

Full text files PDF-file 

Download statistics

Questions (including download problems) about the papers in this series should be directed to Helena Nilsson ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2018-02-05 20:50:24.