Arbitrage markets in everything

by on March 15, 2012 at 2:14 am in Uncategorized | Permalink

Companies like EurimPharm work much as arbitrageurs do in the financial markets. Instead of trading stocks or bonds, the drug arbitrageurs buy prescription and over-the-counter pharmaceuticals from European countries where they cost less, such as Spain and Greece.

They repackage and resell them at a markup in more- expensive European markets, including Germany and the Netherlands.

The arbitrageurs’ profit comes from country-to-country price differences that can be hefty. A Europe-wide price survey in 2009 by a Spanish parallel trader showed price differentials that in a few cases topped 200 percent.

“There used to be a rule of thumb that said you can make money on a price difference of 20 to 25 percent,” he says. “Now you can do it with 10 percent.”

Here is more, there are several other economic points in the article, and for the pointer I thank Alex Bilimoria.

Mike Huben March 15, 2012 at 7:21 am

Is this because the drug companies are attempting price discrimination? Or are the prices set by law in some or all European nations?

Kevin Outterson March 15, 2012 at 8:36 am

Price discrimination by national health care system. This is actually an old topic, much discussed 5-10 years ago in the literature. The legal & economic background can be found in my 2004 article, Pharmaceutical Arbitrage in the Yale Journal of Health Policy, Law & Ethics, http://ssrn.com/abstract=567742.

Rahul March 15, 2012 at 9:35 am

What are the general legal principles about repackaging and resale of branded items? Say,if I bought retail Pepsi and resold it with new labeling and a new name is it legal or do I need permission of the original seller?

libert March 15, 2012 at 10:01 am

I always thought this was illegal, since that’s the only way drug companies can price discriminate.

For example, isn’t it still illegal in the U.S. to import drugs from Canada? If I recall correctly, that was a big issue in the 2004 election, with Kerry vowing to overturn the Bush policy of prohibiting such imports.

Doc Merlin March 15, 2012 at 10:11 am

Yes it is illegal. It has to do with country-by-country price fixing. The US is one of the very few countries that doesn’t fix drug prices below the R&D costs.

awp March 15, 2012 at 7:56 pm

I always thought that it would be a good idea to allow importation of drugs from every western developed nation. That way, the rest of the west could no longer free-ride on the American consumers payment of R&D costs.

TallDave March 15, 2012 at 3:03 pm

Incentives!

Also, was anyone else reminded of the War on Drugs?

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