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On price discrimination, parallel trade and the availability of patented drugs in developing countries

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  • Mazumdar, Mainak
  • Banerjee, Dyuti S.
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    Abstract

    This paper examines the effect of product Patent Act and parallel trade on the availability of an essential drug in the developing countries. Price discrimination by a Multinational Corporation (MNC) alleviates the problem of non-availability of the drug in a developing country compared to uniform pricing strategy. Incorporating an upstream–downstream market structure we show that in the presence of parallel trade ‘a form of arbitrage’ by traders the MNC cannot successfully discriminate the prices for its product. The analysis however, indicate that if the market size of the developing nation is relatively large, then with Cournot competition among the traders, the manufacturer earns higher profit by allowing parallel trade than by perfectly discriminating the prices for its product. Under Bertrand competition, the strategy to allow parallel trade always dominates the strategy to restrain it.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Law and Economics.

    Volume (Year): 32 (2012)
    Issue (Month): 1 ()
    Pages: 188-195

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    Handle: RePEc:eee:irlaec:v:32:y:2012:i:1:p:188-195

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    Web page: http://www.elsevier.com/locate/irle

    Related research

    Keywords: Parallel trade; Patent; Price discrimination;

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    References

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    1. Maskus, Keith E. & Yongmin Chen, 2000. "Vertical price control and parallel imports - theory and evidence," Policy Research Working Paper Series 2461, The World Bank.
    2. Panos Kanavos & Joan Costa-Font, 2005. "Pharmaceutical parallel trade in Europe: stakeholder and competition effects," Economic Policy, CEPR & CES & MSH, vol. 20(44), pages 751-798, October.
    3. Jayashree Watal, 2000. "Pharmaceutical Patents, Prices and Welfare Losses: Policy Options for India Under the WTO TRIPS Agreement," The World Economy, Wiley Blackwell, vol. 23(5), pages 733-752, 05.
    4. Bale, Harvey, Jr, 1998. "The Conflicts between Parallel Trade and Product Access and Innovation: The Case of Pharmaceuticals," Journal of International Economic Law, Oxford University Press, vol. 1(4), pages 637-53, December.
    5. Jean O. Lanjouw, 1997. "Title: The Introduction of Pharmaceutical Product Patents in India: Heartless Exploitation of the Poor and Suffering," Working Papers 775, Economic Growth Center, Yale University.
    6. Keith E. Maskus, 2000. "Parallel Imports," The World Economy, Wiley Blackwell, vol. 23(9), pages 1269-1284, 09.
    7. Marjit, Sugata & Beladi, Hamid, 1998. "Product Versus Process Patents: A Theoretical Approach," Journal of Policy Modeling, Elsevier, vol. 20(2), pages 193-199, April.
    8. Ganslandt, Mattias & Maskus, Keith E., 2005. "Vertical Distribution, Parallel Trade, and Price Divergence in Integrated Markets," Working Paper Series 639, Research Institute of Industrial Economics.
    9. Danzon, Patricia M. & Chao, Li-Wei, 2000. "Cross-national price differences for pharmaceuticals: how large, and why?," Journal of Health Economics, Elsevier, vol. 19(2), pages 159-195, March.
    10. Lanjouw, J.O., 1997. "The Introduction of Pharmaceutical Product Patents in India: "Heartless Exploitation of the Poor and Suffering"?," Papers 775, Yale - Economic Growth Center.
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