Parallel Trade in Pharmaceuticals: The Impact on Welfare and Innovation

Parallel Trade in Pharmaceuticals: The Impact on Welfare and Innovation

Differences among nations in political, Social, economic, legal and regulatory regimes cause differences in prices across countries, which, in turn, create opportunities for arbitrage or ``parallel trade. As with any form of arbitrage, one effect of parallel trade is to diminish the price differentials that gave rise to the arbitrage opportunity. At least four market situations exist in which parallel trade may reduce welfare and weaken the intellectual property rights of innovators. In these settings, a policy that restricts either parallel trade or incentives for parallel trade yields net economic benefit to society. This paper summarizes these situations.