Parallel Trade

Definition

Health Economics

  • A kind of arbitrage in which drugs are imported without the manufacturer's consent into a jurisdiction from a market having lower prices. Since drug prices are regulated in most countries, parallel trading is unlikely, however, to produce the usual implication of arbitrage - the emergence of a single (or close to single) price for each product overcoming inefficiencies arising from uncompetitive practices - because the price differentials reflect efforts to earn a return on Research and Development investment rather than differences in production costs. Parallel trade, though legal in some jurisdictions (for example, within the EU), is bitterly opposed by the pharmaceutical industry because it undermines the value of a patented product and because it effectively imports the results of other countries' regulatory schemes. It is not clear that parallel trade redounds particularly to the benefit of consumers or third party payers, as distinct from that of the parallel traders.
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