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Parallel trade, price regulation, and investment incentives

Author

Listed:
  • Giorgio Matteucci

    (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza")

  • Pierfrancesco Reverberi

    (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza")

Abstract

We study the case where parallel trade (PT) stems from government price controls in a foreign country. We remove the presumption that PT blunts dynamic efficiency if the government has partial commitment ability. We model the R&D firm’s option to serve the foreign country, and find that PT may improve quality, depending on preferences for quality. Improving quality may be a sufficient condition for PT to raise global welfare ex ante. Under PT, quality may be higher with than without price controls.We discuss the role of bargaining power in price negotiations.

Suggested Citation

  • Giorgio Matteucci & Pierfrancesco Reverberi, 2014. "Parallel trade, price regulation, and investment incentives," DIAG Technical Reports 2014-16, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    • Handle: RePEc:aeg:report:2014-16
    as

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    References listed on IDEAS

    as
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    3. 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, June.
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    5. Margaret K. Kyle, 2007. "Pharmaceutical Price Controls and Entry Strategies," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 88-99, February.
    6. Pecorino, Paul, 2002. "Should the US allow prescription drug reimports from Canada?," Journal of Health Economics, Elsevier, vol. 21(4), pages 699-708, July.
    Full references (including those not matched with items on IDEAS)

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    Keywords

    Parallel trade; Price regulation; R&D investment; Intellectual property rights;
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