Why do prices not converge? A theoretical assessment
Kanavos and Costa-Font contradict the standard arbitrage hypothesis of price competition and the race towards the bottom in the importing countries. They reject the hypothesis of price convergence among exporting and importing countries for Europe as a whole 108. Evidence from Sweden suggests that pharmaceutical companies respond to parallel traded competition by reducing their list prices, though to a level which is higher than what parallel traders are charging. Price reductions in Sweden may, therefore, have another purpose than deterring parallel trade. The reason why pharmaceutical companies reduce their list prices may, nevertheless, be parallel trade.
KeywordsMarginal Cost Drug Manufacturer Destination Country Domestic Demand List Price
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