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PARALLEL TRADE, INTERNATIONAL EXHAUSTION AND INTELLECTUAL PROPERTY RIGHTS: A WELFARE ANALYSIS -super-*

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  • TOMMASO M. VALLETTI
  • STEFAN SZYMANSKI

Abstract

This paper analyses the issue of parallel trade (arbitrage) for products protected by intellectual property rights. We discuss a basic trade-off that arises between the ex post better allocation that typically occurs under parallel trade when demand dispersion is not too high, and the ex ante reduced product quality because of lower investment. We show that the size of the welfare effects is significantly affected by the presence of a 'generic' product, which represents a form of competition for the monopolist. The monopolist will introduce a 'fighting brand' to compete with the generic, which dilutes but does not eliminate the result on the adverse effects of parallel trade on investments. Copyright Blackwell Publishing Ltd. 2006.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

Volume (Year): 54 (2006)
Issue (Month): 4 (December)
Pages: 499-526

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Handle: RePEc:bla:jindec:v:54:y:2006:i:4:p:499-526

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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Cited by:
  1. Kamal Saggi & Santanu Roy, 2011. "Strategic Competition and Optimal Parallel Import Policy," Vanderbilt University Department of Economics Working Papers 1117, Vanderbilt University Department of Economics.
  2. Patricia M. Danzon & Andrew W. Mulcahy & Adrian K. Towse, 2011. "Pharmaceutical Pricing in Emerging Markets: Effects of Income, Competition and Procurement," NBER Working Papers 17174, National Bureau of Economic Research, Inc.
  3. Kamal Saggi, 2013. "Market Power in the Global Economy: The Exhaustion and Protection of Intellectual Property," Economic Journal, Royal Economic Society, vol. 123(567), pages 131-161, 03.
  4. Kamal Saggi & Santanu Roy, 2011. "Equilibrium Parallel Import Policies and International Market Structure," Vanderbilt University Department of Economics Working Papers 1113, Vanderbilt University Department of Economics.

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