Publisher:
University of Göttingen, Center for European, Governance and Economic Development Research (cege), Göttingen
Abstract:
This paper studies the effect of pharmaceutical regulation at the wholesale level, if markets are integrated by parallel trade, i.e. trade outside the manufacturer´s authorized distribution channel. In particular, maximum wholesale margins, a restriction of pricing by the intermediary, and mandatory rebates, a restriction of the pricing by the manufacturer, are analyzed with respect to their effect on drug prices, quantities, and public pharmaceutical expenditure. Maximum wholesale margins enhance the manufacturer´s ability to reduce competition from parallel trade in the destination country by increasing wholesale prices. In a symmetric equilibrium, maximum wholesale margins of both countries partly offset each other. Mandatory rebates may be a policy alternative, as they exhibit a reinforcing effect with respect to drug prices.