Pricing and Welfare of Parallel Imports in the Pharmaceutical Industry

In this paper we investigate the implications of permitting parallel imports ofpharmaceuticals produced by a monopoly, from one country to another. We use a modelwhere countries differ in the patients’ level of co-payment for buying pharmaceuticals, andpatients differ in the utility obtained from the consumption of pharmaceuticals. We show thatthe effects of parallel imports on total welfare are as follows: On the one hand, whencountries differ in their health system only, parallel imports decrease total welfare; On theother hand, when countries differ in the health needs of their patients only, parallel importsenhance total welfare.