Pharmaceutical drug prices in the international market

I generate and test two hypotheses that may improve consumer access to pharmaceutical drugs. First, I show that income inequality increases pharmaceutical prices. Second, I show that parallel imports of pharmaceuticals offers a source of increased price competition for branded drugs and prices decrease as a result. The reduction of income inequality and allowing parallel imports are both policies that reduce drug prices, increasing access.; I develop a model of demand that is a variation of the Stone-Geary utility function. Demand is non-homothetic, resulting in a price elasticity that falls with per capita income. Incorporating several income distributions, I show that rising inequality will increase the equilibrium price of pharmaceuticals. Increasing inequality lowers the market price elasticity of demand. Assuming that a monopoly supplier of the pharmaceutical bases his markup on the inverse of the price elasticity of demand, the reduction in price elasticity increases the equilibrium price. Thus, this model shows that the equilibrium price of pharmaceuticals is a function of income inequality.; I test the hypotheses described above using IMS Health data. I estimate the structural price equation developed in the theory using nonlinear estimation techniques. The results support the theory in that the poorest of the population does not consume pharmaceuticals. I also estimate a linear reduced-form version and find that income inequality, measured by the Gini coefficient, has a positive and significant effect on drug prices. Per capita income, however, is not significant contrary to results from previous studies.; Finally, I study the effects of parallel imports on brand drug prices in Sweden. I find that parallel imports are closer substitutes to brand drugs than are generics. As a result, parallel imports are a source of increased price competition for brand drugs, and brand prices decline. In addition, I estimate the effect of parallel imports on brand drug profits and find a negative and significant effect. The entry of a single parallel import supplier has a negative 4.9% on profits, or equivalently, a US {dollar}400,000 profit loss for each brand drug. These results indicate there are short run benefits from allowing parallel import competition.