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Parallel Imports, Drag Price Control and Pharmaceutical Innovation

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Author Info

  • Ken Tabata

    ()
    (Kobe City University of Foreign Studies)

  • Testuya Shinkai

    ()
    (Kwansei Gakuin University)

  • Satoru Tanaka

    (Kobe City University of Foreign Studies)

  • Makoto Okamura

    (Hiroshima University)

Abstract

This paper examines how parallel importation influences pharmaceutical innovation and the welfare of the economy, when crossnational drug price differentials occur not only because of demand elasticity based factors, but also governmental drug price control based factors. By explicitly considering the governmental drug price control baaed factors, this paper shows that parallel importation may enhance pharmaceutical innovation, when the bargaining power of a foreign government is strong and the price elasticity of demand in the foreign market is small. We also show that the increase in R&D induced by parallel imports may even increase the consumer surplus of a country with high demand elasticities and which could face relatively low drug prices, if parallel imports were not allowed.

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File URL: http://192.218.163.163/RePEc/pdf/kgdp26.pdf
File Function: First version, 2005
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Bibliographic Info

Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 26.

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Length: 34 pages
Date of creation: Aug 2005
Date of revision: Aug 2005
Handle: RePEc:kgu:wpaper:26

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Keywords: Parallel Imports; Pharmaceutical Innovation; Drug Price Control;

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  1. Tommaso Valletti & Stefan Szymanski, 2006. "Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis," CEIS Research Paper 75, Tor Vergata University, CEIS.
  2. Valletti, Tommaso M., 2006. "Differential pricing, parallel trade, and the incentive to invest," Journal of International Economics, Elsevier, vol. 70(1), pages 314-324, September.
  3. Pecorino, Paul, 2002. "Should the US allow prescription drug reimports from Canada?," Journal of Health Economics, Elsevier, vol. 21(4), pages 699-708, July.
  4. Malueg, David A. & Schwartz, Marius, 1994. "Parallel imports, demand dispersion, and international price discrimination," Journal of International Economics, Elsevier, vol. 37(3-4), pages 167-195, November.
  5. Michael Kremer, 2002. "Pharmaceuticals and the Developing World," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 67-90, Fall.
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