The Effect of Pharmacies’ Right to Negotiate Discounts on the Market Share of Parallel Imported Pharmaceuticals

Abstract

This paper analyzes how allowing pharmacies to negotiate discounts with parallel traders and producers affects the market share for parallel imports. Economic theory predicts that discount negotiations will promote products bought directly from the producers because producers have cost advantages, due to which they always underbid the marginal prices of parallel traders. A reform that allowed discount negotiations is found to reduce the market share for parallel imports by about 11 percentage points to reach 31%. The results clearly indicate that pharmacies have an important role in the choice between medically equivalent pharmaceuticals.

The Price Effects of Competition from Parallel Imports and Therapeutic Alternatives: Using Dynamic Models to Estimate the Causal Effect on the Extensive and Intensive Margins

“…For all IV− specifications, the null hypothesis that the model is under− identified is rejected at the 1% significance level; and the null hypothesis for the Hansen J test that the instruments are valid-uncorrelated with the error term-are not rejected at conventual levels discounts to pharmacies. Results in Granlund (2015) are consistent with producers after July 2009 giving pharmacies discounts to incentivize them to sell locally sourced products instead of parallel imports. It is also possible that producers, due to the possibility of giving discounts, stopped decreasing list prices in response to facing competition from parallel imports.…”

“…On average during the study period, USD 1 = SEK 7.52 and EUR 1 = SEK 9.20. 10 Physicians and pharmacists oppose substitution for only 2-3% of the observations each (Dental and Pharmaceutical Benefits Agency, 2016;Granlund, 2015). 7 Three percent of the groups of exchangeable products includes more than one locally sourced brandname product.…”

Squeezing the Last Drop Out of Your Suppliers: An Empirical Study of Market‐Based Purchasing Policies for Generic Pharmaceuticals

“…There is a potential endogeneity problem because the error term, ɛ e , t , can be correlated with price differences between the lowest bidder and other products. High price differences might in turn affect Sw e , t positively, by making it more expensive for consumers to buy another alternative, or negatively, because pharmacies tend to be more inclined to sell expensive products the more they earn by doing so (Brekke, Holmås and Straume, ; Granlund, ). To address the potential endogeneity of Sw e , t , we estimate a specification, using Sw, instead of SwP and NotPolicy, with 2SLS and, using OLS as a comparison.…”

Direct and indirect savings from parallel imports in Sweden

“…This strengthens the conjecture that the preference of locally sourced product sellers to compete with parallel imports by giving discounts to pharmacies is a main reason that previous studies [6][7][8] have not found significant effects on list prices when discounts were legal. Some advantages of using discounts are that they can be quickly reverted and do not affect the maximum prices producers are allowed to charge in countries that use external reference pricing [18].…”