Parallel Imports and Mandatory Substitution Reform: A kick or a muff for price competition in pharmaceuticals

Posted by D. Daniel Sokol

David Granlund (The Swedish Retail Institute and Umea University) and Miyase Yesim Koksal  (Department of Economics, School of Business, Economics and Law, Goteborg University) address Parallel Imports and Mandatory Substitution Reform: A kick or a muff for price competition in pharmaceuticals.

ABSTRACT: What has been the effect of competition from parallel imports on prices of locally-sourced onpatent drugs? Did the 2002 Swedish mandatory substitution reform increase this competition? To answer these questions, we carried out difference-in-differences estimation on monthly data for a panel of all on-patent prescription drugs sold in Sweden during the 40 months from January 2001 through April 2004. On average, facing competition from parallel imports caused a 15-17% fall in price. While the reform increased the effect of competition from parallel imports, it was only by 0.9%. The reform, however, did increase the effect of therapeutic competition by 1.6%.