v1.0 researched and written by Elise Erickson, edited by Suerie Moon, last updated June 2018
The literature on parallel import/parallel trade has been considerable* over time, and it ranges from theoretical to empirical studies. Much of the parallel import literature is bundled together with discussions on tiered pricing/differential pricing, or the protection of intellectual property rights. The literature is heavily EU-focused.
Parallel import, parallel trade
SYNTHESIS OF THE LITERATURE
One of the major discussions in the literature is whether or not parallel trade hampers innovation. Those opposed to parallel trade argue that it weakens intellectual property rights, undermines profits, and therefore hinders investment/innovation (Danzon 1998; Li and Maskus 2006).
Along these lines, some then argue that parallel trade reduces welfare. Others, however, argue that parallel trade does not have damaging effects on innovation (Bennato and Valletti 2014), and can even increase the pace of innovation (Grossman and Lai 2008), and can increase a firm’s profit (Pecorino 2002). Other models produce mixed results – i.e. showing how parallel trade can increase or decrease profits depending on a variety of factors (Guo, Hu, and Zhong 2013).
Maskus (2001) combined theory and empirical evidence to conclude that parallel exports from LICs to HIC should be prohibited, but that LICs could be open to parallel imports. Some argued that parallel trade would undermine price differentials – therefore reducing profit, and subsequently innovation (Szymanski, Valletti, and Demange 2005; Danzon 1998).
For instance, Danzon (1998) argued that parallel trade would make both LICs and HICs worse off since LICs would suffer from higher prices and decreased access to new drugs, and HICs would suffer from less development of new drugs.
Similarly, there is a debate over whether or not parallel trade implies price convergence, and over the tension between parallel importation and price differentials. Danzon (1998) argued that parallel trade tends to force price convergence across countries, and others found empirical evidence to support ‘convergence to the top’ rather than a convergence to the bottom for EU prices (P. Kanavos, Costa-Font, and Gollier 2005; P. Kanavos and Vandoros 2010).
Some studies examined the savings generated by parallel trade. Two reports, a 2003 London School of Economics (LSE) report and the 2002 York report, are viewed by some as influential in the parallel trade of pharmaceuticals debate (P. Kanavos et al. 2004; West and Mahon 2003). These reports draw conflicting conclusions. The LSE report found insignificant savings from parallel trade, whereas the York report found significant savings (over €600 million in 2001). A subsequent study in 2006, however, found that the methodology for computing savings was more appropriate in the York report, and that when this methodology was subsequently applied to 2004 data, direct savings from parallel trade to patients/health insurers amounted to 441.5 million Euro in four European countries (Enemark, Pedersen, and Sorensen 2006). Other studies examined savings in Sweden (Ganslandt and Maskus 2004), and Finland (Linnosmaa, Karhunen, and Vohlonen 2003).
When examining who benefits from parallel trade, one study found that in Europe the parallel distributors benefit most (without any direct benefits to patients) (P. Kanavos et al. 2004, 15). In addition, a study presented evidence that suggests parallel trade does not generate price competition (Vandoros and Kanavos 2014). Panavos and colleagues have concluded that parallel trade is not a suitable long-term solution to cutting prices (P. Kanavos and Kowal 2008; P. Kanavos, Costa-Font, and Gollier 2005).
Finally, parallel trade also emerges as a topic in papers discussing multiple pricing policies; for example, Chaumont et al. (2015, S179) described how Mexico’s laws prohibiting parallel trade, including through PAHO's Strategic Fund, limited its ability to lower drug prices.
Analysis of estimated or potential savings of parallel trade in medicines and impact on prices, particularly for countries outside of the EU
Further analysis of the distribution of economic benefits from parallel trade (patients, distributors, etc.)
CITED PAPERS WITH ABSTRACTS
Abbott, Frederick. 2016. “Excessive Pharmaceutical Prices and Competition Law: Doctrinal Development to Protect Public Health.” UC Irvine Law Review 6 (3): 281."Abstract: Public health budgets and individual patients around the world struggle with high prices for pharmaceutical products. Difficulties are not limited to low income countries. Prices for newly introduced therapies to treat hepatitis C, cancer, joint disease and other medical conditions have entered the stratosphere. In the United States, state pharmaceutical acquisition budgets are at the breaking point -- or have passed it -- and treatment is effectively rationed. Competition/antitrust law has rarely been used to address “excessive pricing” of pharmaceutical products. This is a worldwide phenomenon. In the United States, the federal courts have refused to apply excessive pricing as an antitrust doctrine, either with respect to pharmaceutical products or more generally. Courts in some other countries have been more receptive to considering the doctrine, but application in specific cases has been sporadic, including with respect to pharmaceuticals. This remains a paradox of sorts. Competition law experts acknowledge that one of the principal objectives of competition policy is to protect consumers against the charging of excessive prices. The currently preferred alternative is to address the “structural problems” that allow the charging of excessive prices. That is, “fixing the market” so that the underlying defect by which excessive prices are enabled is remedied. There is a fundamental problem with the “fixing the market” approach when addressing products protected by legislatively authorized market exclusivity mechanisms such as patents and regulatory marketing exclusivity. That is, mechanical aspects of the market are not broken in the conventional antitrust sense. Rather, the market has been designed without adequate control mechanisms or “limiters” that act to constrain exploitive behavior. Political institutions, such as legislatures, that might step in are constrained by political economy (e.g., lobbying), and do not respond as they should. Competition law and policy should develop robust doctrine to address excessive pricing in markets lacking adequate control mechanisms. This article will focus specifically on the pharmaceutical sector because of its unique structure and social importance. This focus is not intended to exclude the possibility that development of excessive pricing doctrine would be useful in other contexts. This article is divided into two parts. The first addresses competition policy and why it is appropriate to develop the doctrine of excessive pricing to address distortions in the pharmaceutical sector. The second addresses the technical aspect of how courts or administrative authorities may determine when prices are excessive, and potential remedies. The policy prescription of this article is twofold: first, the United States should incorporate excessive pricing doctrine in its antitrust arsenal, and; second, other countries should maintain the status quo with respect to multilateral competition rules that allow them flexibility to develop and refine doctrine, including excessive pricing doctrine, that is best suited to their circumstances and interests. Link: https://scholarship.law.uci.edu/ucilr/vol6/iss3/3/
Heller, Peter S. “The Prospects of Creating ‘Fiscal Space’ for the Health Sector.” Health Policy and Planning 21, no. 2 (March 1, 2006): 75–79. https://doi.org/10.1093/heapol/czj013."Abstract: Not Available Link: https://academic.oup.com/heapol/article/21/2/75/554947
Lexchin, Joel. 2015. “Drug Pricing in Canada.” In Pharmaceutical Prices in the 21st Century, 25–41. Adis, Cham. https://doi.org/10.1007/978-3-319-12169-7_2."Abstract: Not available Link: https://link.springer.com/chapter/10.1007/978-3-319-12169-7_2
Love, James. 2012. “Affidavit: Natco Pharma Limited versus Bayer Corporation.” https://www.keionline.org/sites/default/files/aff-jameslove_13Feb2012_as_Filed.pdf."Abstract: Not available Link: https://www.keionline.org/sites/default/files/aff-jameslove_13Feb2012_as_Filed.pdf
Ottersen, Trygve, Riku Elovainio, David B. Evans, David McCoy, Di Mcintyre, Filip Meheus, Suerie Moon, Gorik Ooms, and John-Arne Røttingen. 2017. “Towards a Coherent Global Framework for Health Financing: Recommendations and Recent Developments.” Health Economics, Policy, and Law 12 (2): 285–96. https://doi.org/10.1017/S1744133116000505."Abstract: The articles in this special issue have demonstrated how unprecedented transitions have come with both challenges and opportunities for health financing. Against the background of these challenges and opportunities, the Working Group on Health Financing at the Chatham House Centre on Global Health Security laid out, in 2014, a set of policy responses encapsulated in 20 recommendations for how to make progress towards a coherent global framework for health financing. These recommendations pertain to domestic financing of national health systems, global public goods for health, external financing for national health systems and the cross-cutting issues of accountability and agreement on a new global framework. Since the Working Group concluded its work, multiple events have reinforced the group’s recommendations. Among these are the agreement on the Addis Ababa Action Agenda, the adoption of the Sustainable Development Goals, the outbreak of Ebola in West Africa and the release of the Panama Papers. These events also represent new stepping stones towards a new global framework. Link: https://www.cambridge.org/core/journals/health-economics-policy-and-law/article/towards-a-coherent-global-framework-for-health-financing-recommendations-and-recent-developments/32B84686FD13D7CB340643D798832095
Wirtz, Veronika J., Hans V. Hogerzeil, Andrew L. Gray, Maryam Bigdeli, Cornelis P. de Joncheere, Margaret A. Ewen, Martha Gyansa-Lutterodt, et al. 2017. “Essential Medicines for Universal Health Coverage.” The Lancet 389 (10067): 403–76. https://doi.org/10.1016/S0140-6736(16)31599-9."Abstract: Not available Link: https://www.thelancet.com/action/showPdf?pii=S0140-6736%2816%2931599-9
World Health Organization. n.d. “Essential Medicines.” WHO. http://www.who.int/medicines/services/essmedicines_def/en/.Abstract: Not available Link: http://www.who.int/medicines/services/essmedicines_def/en/
Xu, Ke, David B Evans, Kei Kawabata, Riadh Zeramdini, Jan Klavus, and Christopher J L Murray. 2003. “Household Catastrophic Health Expenditure: A Multicountry Analysis.” The Lancet 362. http://www.who.int/health_financing/documents/lancet-catastrophic_expenditure.pdf."Abstract: Not available Link: http://www.who.int/health_financing/documents/lancet-catastrophic_expenditure.pdf
* For the purposes of this review, we have established three categories to describe the state of the literature: thin, considerable, and rich.
- Thin: There are relatively few papers and/or there are not many recent papers and/or there are clear gaps
- Considerable: There are several papers and/or there are a handful of recent papers and/or there are some clear gaps
- Rich: There is a wealth of papers on the topic and/or papers continue to be published that address this issue area and/or there are less obvious gaps
Scope: While many of these issues can touch a variety of sectors, this review focuses on medicines. The term medicines is used to cover the category of health technologies, including drugs, biologics (including vaccines), and diagnostic devices.
Disclaimer: The research syntheses aim to provide a concise, comprehensive overview of the current state of research on a specific topic. They seek to cover the main studies in the academic and grey literature, but are not systematic reviews capturing all published studies on a topic. As with any research synthesis, they also reflect the judgments of the researchers. The length and detail vary by topic. Each synthesis will undergo open peer review, and be updated periodically based on feedback received on important missing studies and/or new research. Selected topics focus on national and international-level policies, while recognizing that other determinants of access operate at sub-national level. Work is ongoing on additional topics. We welcome suggestions on the current syntheses and/or on new topics to cover.