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Intellectual Property Rights, Parallel Imports and Strategic Behavior

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Author Info

  • Maskus, Keith E.

    (Department of Economics)

  • Ganslandt, Mattias

    ()
    (Research Institute of Industrial Economics (IFN))

Abstract

The existence of parallel imports (PI) raises a number of interesting policy and strategic questions, which are the subject of this survey article. For example, parallel trade is essentially arbitrage within policy-integrated markets of IPR-protected goods, which may have different prices across countries. Thus, we analyze fully two types of price differences that give rise to such arbitrage. First is simple retail-level trade in horizontal markets because consumer prices may differ. Second is the deeper, and more strategic, issue of vertical pricing within the common distribution organization of an original manufacturer selling its goods through wholesale distributors in different markets. This vertical price control problem presents the IPR-holding firm a menu of strategic choices regarding how to compete with PI. Another strategic question is how the existence of PI might affect incentives of IPR holders to invest in research and development (R&D). The global research-based pharmaceutical firms, for example, strongly oppose any relaxation of restrictions against PI of drugs into the United States, arguing that the potential reduction in profits would diminish their ability to innovate. There is a close linkage here with price controls for medicines, which are a key component of national health policies but can give rise to arbitrage through PI. We also discuss the complex economic relationships between PI and other forms of competition policy, or attempts to limit the abuse of market power offered by patents and copyrights. Finally, we review the emerging literature on how policies governing PI may affect international trade agreements.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 704.

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Length: 46 pages
Date of creation: 12 Mar 2007
Date of revision:
Handle: RePEc:hhs:iuiwop:0704

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Related research

Keywords: IPR; Parallel Imports; International Arbitrage; Research and Development;

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Cited by:
  1. Reto Foellmi & Christian Hepenstrick & Josef Zweimüller, 2010. "Non-homothetic preferences, parallel imports and the extensive margin of international trade," IEW - Working Papers 497, Institute for Empirical Research in Economics - University of Zurich.
  2. Acharyya, Rajat & García-Alonso, María D.C., 2012. "Income based price subsidies and parallel imports," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 25-41.
  3. Stähler, Frank & Maskus, Keith, 2013. "Retailers as agents: why parallel trade does not work," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79737, Verein für Socialpolitik / German Economic Association.

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