The welfare impact of parallel imports

A structural approach applied to the German market for oral anti-diabetics

authored by

Tomaso Duso, Annika Herr, Moritz Suppliet

Abstract

We investigate the welfare impact of parallel imports using a large panel dataset containing monthly information on sales, ex-factory prices, and further product characteristics for all 649 anti-diabetic drugs sold in Germany between 2004 and 2010. We estimate a two-stage nested logit model of demand, and on the basis of an oligopolistic model of multi-product firms, we then recover the marginal costs and markups. We finally evaluate the effect of the parallel imports' policy by calculating a counterfactual scenario without parallel trade. According to our estimates, parallel imports reduce the prices for patented drugs by 11% and do not have a significant effect on prices for generic drugs. This amounts to an increase in the demand-side surplus by €19 million per year (or €130 million in total), which is relatively small compared with the average annual market size of around €227 million based on ex-factory prices. The variable profits for the manufacturers of original drugs from the German market are reduced by €18 million (or 37%) per year when parallel trade is allowed, yet only one third of this difference is appropriated by the importers.

External Organisation(s)

German Institute for Economic Research (DIW)
University Hospital Düsseldorf

Type

Article

Journal

Health Economics (United Kingdom)

Volume

23

Pages

1036-1057

No. of pages

22

ISSN

1057-9230

Publication date

09.2014

Publication status

Published

Peer reviewed

Yes

ASJC Scopus subject areas

Health Policy

Sustainable Development Goals

SDG 3 - Good Health and Well-being

Electronic version(s)

https://doi.org/10.1002/hec.3068 (Access: Open)