By Brian Ferguson

Differences in the prices of prescription drugs between Canada and the united States have been a hot topic in the news in recent months, even intruding into the American Presidential election.  Part of the reason for the difference is simply the exchange rate, and the most likely explanation for the remainder is the fact that Canada and the United States are separate markets.

It’s not uncommon for the same good to be priced differently in different markets:  prices tend to be lower in lower income countries, for example, and Canadian incomes are lower then American incomes.

Maintaining the price difference requires that the market separation be maintained, and until now the American Food and Drug Administration has done Canadians the favour of keeping the two markets separate by preventing  Americans from re-importing drugs from Canada.

If, as many states are demanding, re-importation becomes legal, Canadian consumers of prescription drugs are not going to be happy with the outcome.

The most likely outcome is that our market will be swallowed by theirs. When that happens, one of two outcomes will follow:  either Canadian drug prices will rise to U.S. levels or, if the Canadian government manages to prevent that, American pharmaceutical companies will restrict their shipments to Canada.  In that case, each pill re-imported into the U.S. will be a pill which is not available for a Canadian consumer to take.  In either case, we lose.

To learn more about this issue, read the full commentary.