Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
983824 | Regional Science and Urban Economics | 2012 | 6 Pages |
Reimportation of prescription drugs by American consumers from Canada has been a high-visibility policy issue. The large price discrepancies for some patented drugs arise from market pricing in the U.S. and a system of administered pricing in Canada. The model assumes that there are two classes of U.S. consumers: one group who cannot reimport drugs at any cost, and a second group with a distribution of reimportation costs. Under the assumption that the group who can reimport drugs has lower willingness to pay, reimportation serves as a mechanism for price discrimination in the U.S. market.The results include the following: 1) a decline in the Canadian price may raise the U.S. price; 2) a shift down in the distribution of reimportation costs may similarly raise the U.S. price; 3) a shift down in the distribution of reimportation costs may raise drug manufacturer profits.
► I study the effects on U.S. drug prices of expanded reimportation from Canada. ► Only one group of U.S. consumers can purchase in Canada. ► A shift down in the distribution of reimportation costs may raise the U.S. price. ► A shift down in reimportation costs may raise drug manufacturer profits.