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Income based price subsidies and parallel imports

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  • Acharyya, Rajat
  • García-Alonso, María D.C.

Abstract

We present a policy game where a Rich country has a higher ability than a Poor country to commit to certain elements of health policy such as providing income related price subsidies and allowing parallel imports (PI). When allowing PI is not a choice for the Poor country, the Rich country allows PI and both countries provide a subsidy to their poorer buyers as the subgame perfect equilibrium policies. However, when the Poor is able to PI a different equilibrium may arise. We show that the ability of the Poor to allow PI might increase welfare in this country even if it is never implemented. We also prove that as the Poor country gets richer, it will not be in their best interest to sign an agreement with the Rich to commit to not allowing PI.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 22 (2012)
Issue (Month): 1 ()
Pages: 25-41

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Handle: RePEc:eee:reveco:v:22:y:2012:i:1:p:25-41

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Web page: http://www.elsevier.com/locate/inca/620165

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Keywords: Income based price subsidies; Parallel imports; Pharmaceuticals;

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References

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  1. García-Alonso, M. D. C. & Garcia-Marinoso, B., 2007. "The strategic interaction between firms and formulary committees: effects on the prices of new drugs," Working Papers 07/16, Department of Economics, City University London.
  2. Acharyya, Rajat, 2005. "Quality discrimination among income constrained consumers," Economics Letters, Elsevier, vol. 86(2), pages 245-251, February.
  3. Maskus, Keith E. & Ganslandt, Mattias, 2007. "Intellectual Property Rights, Parallel Imports and Strategic Behavior," Working Paper Series 704, Research Institute of Industrial Economics.
  4. Jung Hur & Yohanes E. Riyanto, 2006. "Tariff policy and exhaustion of intellectual property rights in the presence of parallel imports," Oxford Economic Papers, Oxford University Press, vol. 58(3), pages 549-568, July.
  5. Malueg, D.A. & Schwartz, M., 1993. "Parallel Imports, Demand Dispersion and International Price Discrimination," Papers 93-6, U.S. Department of Justice - Antitrust Division.
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  7. Gene M. Grossman & Edwin L.-C. Lai, 2008. "Parallel imports and price controls," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 378-402.
  8. Acharyya, Rajat, 1998. "Monopoly and product quality: Separating or pooling menu?," Economics Letters, Elsevier, vol. 61(2), pages 187-194, November.
  9. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Price competition, quality and income disparities," CORE Discussion Papers RP -370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  11. Rajat Acharyya & Swapnendu Bandyopadhyay(Banerjee), 2004. "Does Input Sector Liberalization Promote Quality Innovation and Exports?," Econometric Society 2004 Far Eastern Meetings 650, Econometric Society.
  12. Izabela Jelovac & Catalina Bordoy, 2005. "Pricing and Welfare Implications of Parallel Imports in the Pharmaceutical Industry," International Journal of Health Care Finance and Economics, Springer, vol. 5(1), pages 5-21, January.
  13. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  14. Richardson, Martin, 2002. "An elementary proposition concerning parallel imports," Journal of International Economics, Elsevier, vol. 56(1), pages 233-245, January.
  15. F. M. Scherer & Jayashree Watal, 2002. "Post-TRIPS Options for Access to Patented Medicines in Developing Nations," Journal of International Economic Law, Oxford University Press, vol. 5(4), pages 913-939, December.
  16. Rajat Acharyya & María D.C. García-Alonso, 2008. "Parallel Imports, Innovations And National Welfare: The Role Of The Sizes Of Income Classes And National Markets For Health Care," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 53(01), pages 57-79.
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