title: Is medicines parallel trade 'regulatory arbitrage'?
abstract: Parallel trade (PT) is a phenomenon that takes place at the distribution level, when a patented product is diverted from the official distribution chain to another one where it competes as a parallel distributor. Although some research regards PT in Europe as a 'common' form of arbitrage, there are reasons to believe that it is a type of 'regulatory arbitrage' that does not necessarily produce equivalent welfare effects. We draw upon a unique dataset that contains source country records of parallel imported medicine sales to the Netherlands for one therapeutic group (statins), that accounts for 5 % of the market at the time of study and it faced no generic competition. We estimate precise differences in prices and statutory distribution margins for each source country/product and, examine whether they drive parallel import flows using a gravity specification and an instrumental variable strategy. Our findings reveal that parallel imports are driven by cross-country differences in statutory distribution margins in addition to price differences, consistently with the hypothesis of PT being a type of 'regulatory arbitrage'.
authors.affiliation: Department of Social Policy, London School of Economics and Political Science (LSE), Houghton Street, London, WC2A 2AE, UK. j.costa-font@lse.ac.uk.
authors.forename: Joan
authors.initials: J
authors.lastname: Costa-Font
mesh_terms: D003132:Commerce; D016527:Drug Costs; D004345:Drug Industry; D016568:Drugs, Generic / Q000191:economics*; D004465:Economic Competition; D005060:Europe; D006291:Health Policy; D009426:Netherlands; D004364:Pharmaceutical Preparations
chemical_list: D016568:Drugs, Generic; D004364:Pharmaceutical Preparations
keywords: Parallel imports; Parallel trade; Pharmaceuticals; Regulatory arbitrage; Supply chain