The EU and drug price discrimination

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The European Court of Justice just ruled that it has no authority to stop parallel trading in drugs:
The business has sprung from a pricing policy in Europe unique to the drug industry. Each European country sets the price that drug manufacturers charge for medicines based on how wealthy the country is. The prices drug makers set for Eastern Europe can be as much as 30 percent to 70 percent less than in Britain, for example.

A network of wholesalers buys the drugs, and sells some of them locally. In lower-priced countries, however, the wholesalers often divert some of the drugs to countries that have higher prices, including Britain, Germany and some Scandinavian countries. The wholesalers repackage the drugs with instructions in the local language, but otherwise make no changes to the product, and they can make a substantial profit.

So, the interesting question for me is how the drug companies will respond. They can obviously refuse to sell in the lower cost countries (where they make less money anyway), try to lobby for restrictions on import (which I doubt they'll get) or they can live with the loss of profits. Any guesses?

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4 Comments

Probably the same thing they are starting to do to Canada: only sell enough for their population. The drug companies already have a pretty good idea about how many people need the drugs and will only sell that quantity to those specific nations.

And the result of the strategy Grumpy outlines? Why it, is that
the drugs are still repackaged and sold at higher prices
elsewhere and the drug availability in the target country
goes down. If there is enough money in that market, the
price can rise there to compensate, but in lots of cases,
the drugs just stay gone.

Thanks, drug lords!

I can't tell whether this involves contracts between drug companies and their wholesalers that prevent redistribution outside the country or some sort of national ruling. I don't see any obvious reason why such contracts would be illegal, and they'd maintain the same price discrimination.

Price discrimination (as I recall) is more efficient than lack thereof when you are dealing with a monopoly. It increases both consumer welfare and producer welfare (which is important because it encourages development in new drugs.)

Preventing this sort of thing is one of the core missions of the EU, surely? It no more makes sense than preventing drugs sold in Bradford from being resold in London.

As for price discrimination in a monopoly, I often wonder why in the UK we have a National Health Service but not a nationalised pharmaceutical industry supplying it.

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