Objective. To examine the effect of parallel trade on patterns of price dispersion for prescription drugs in the European Union.
Data Sources. Longitudinal data from an IMS Midas database of prices and units sold for drugs in 36 categories in 30 countries from 1993 through 2004.
Study Design. The main outcome measures were mean price differentials and other measures of price dispersion within European Union countries compared with within non-European Union countries.
Data Collection/Extraction Methods. We identified drugs subject to parallel trade using information provided by IMS and by checking membership lists of parallel import trade associations and lists of approved parallel imports.
Principal Findings. Parallel trade was not associated with substantial reductions in price dispersion in European Union countries. In descriptive and regression analyses, about half of the price differentials exceeded 50 percent in both European Union and non-European Union countries over time, and price distributions among European Union countries did not show a dramatic change concurrent with the adoption of parallel trade. In regression analysis, we found that although price differentials decreased after 1995 in most countries, they decreased less in the European Union than elsewhere.
Conclusions. Parallel trade for prescription drugs does not automatically reduce international price differences. Future research should explore how other regulatory schemes might lead to different results elsewhere.