| dc.description.abstract | Should governments allow parallel trade of pharmaceuticals? There is no clear-cut answer to
this question, since parallel trade causes some public concerns. One is that prices might not
decrease much in the home country because consumers are price insensitive as a result of
medical insurance. Another one is that consumers in the foreign country might face higher
prices or supply shortages, since manufacturers want to deter parallel trade. And a third one is
that consuming parallel imported drug, since it is perceived as inferior, creates additional
cost. This paper provides answers to these concerns by taking into account the so-called
healthcare reimbursement policy of reference pricing, requiring consumers to pay the full
extra cost if they don’t buy the cheaper (parallel imported) alternative. It is then shown that
parallel trade gives rise to more substantial price reductions under reference pricing than
under coinsurance in the home (importing) country while, contrary to intuition, leaving price
unchanged in the foreign (exporting) country. Even if parallel trade creates a social cost
accrued from perceived quality difference, it would not be aggravated by reference pricing. | en |
