Friday 26 August 2011

Preventing arbitrage

Pharmaceuticals are cheaper in Canada than in the States. Even in the absence of Medicare this would likely be the case; income-based price discrimination would have cheaper prices in Canada for goods characterized by very very high fixed costs and trivial marginal cost (adjusting for that the price of everything is higher in Canada). But price discrimination can only be maintained if you make it hard to arbitrage. Car trips to Canada are relatively pricey, but internet sales aren't.

How to prevent re-import this way? Beat the crap out of Google:

Department of Justice
Office of Public Affairs
Wednesday, August 24, 2011
Google Forfeits $500 Million Generated by Online Ads & Prescription Drug Sales by Canadian Online Pharmacies
Internet Search Engine Accepted Advertisements from Online Canadian Pharmacies that Targeted U.S. Consumers and Illegally Imported Controlled and Non-Controlled Prescription Drugs into the United States

Ouch. The DoJ's argument is disingenuous though:
“The Department of Justice will continue to hold accountable companies who in their bid for profits violate federal law and put at risk the health and safety of American consumers,” said Deputy Attorney General Cole.  “This settlement ensures that Google will reform its improper advertising practices with regard to these pharmacies while paying one of the largest financial forfeiture penalties in history.” 
I call BS. Prosecution protects a price discrimination scheme and consequently works to keep drugs cheaper for Canadians; in the absence of restrictions on arbitrage, drug companies would have to charge Canadians US prices and would forgo profits in doing so.

If Google is to be policeman for international price discrimination regimes, I wonder what Google's policing costs are.....

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