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Parallel Imports and Price Controls

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  • Gene M. Grossman
  • Edwin C.-L. Lai

Abstract

Price controls create opportunities for international arbitrage. Many have argued that such arbitrage, if tolerated, will undermine intellectual property rights and dull the incentives for investment in research-intensive industries such as pharmaceuticals. We challenge this orthodox view and show, to the contrary, that the pace of innovation often is faster in a world with international exhaustion of intellectual property rights than in one with national exhaustion. The key to our conclusion is to recognize that governments will make different choices of price controls when parallel imports are allowed by their trade partners than they will when they are not.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12423.

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Date of creation: Aug 2006
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Publication status: published as 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.
Handle: RePEc:nbr:nberwo:12423

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  1. Grossman, Gene & Lai, Edwin, 2002. "International Protection of Intellectual Property," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3118, C.E.P.R. Discussion Papers.
  2. Ganslandt, Mattias & Maskus, Keith E., 2001. "Parallel Imports of Pharmaceutical Products in the European Union," Working Paper Series, Research Institute of Industrial Economics 546, Research Institute of Industrial Economics.
  3. J. S. Chard & C. J. Mellor, 1989. "Intellectual Property Rights and Parallel Imports," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 12(1), pages 69-84, 03.
  4. Pecorino, Paul, 2002. "Should the US allow prescription drug reimports from Canada?," Journal of Health Economics, Elsevier, Elsevier, vol. 21(4), pages 699-708, July.
  5. Stefan Szymanski & Tommaso Valletti, 2005. "Parallel trade, price discrimination, investment and price caps," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 20(44), pages 705-749, October.
  6. Patricia M. Danzon, 1998. "The Economics of Parallel Trade," PharmacoEconomics, Springer Healthcare | Adis, Springer Healthcare | Adis, vol. 13(3), pages 293-304.
  7. Keith E. Maskus, 1993. "Intellectual property rights and the Uruguay Round," Economic Review, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, issue Q I, pages 10-25.
  8. Li, Changying & Maskus, Keith E., 2006. "The impact of parallel imports on investments in cost-reducing research and development," Journal of International Economics, Elsevier, Elsevier, vol. 68(2), pages 443-455, March.
  9. Keith E. Maskus, 2000. "Parallel Imports," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 23(9), pages 1269-1284, 09.
  10. Malueg, David A. & Schwartz, Marius, 1994. "Parallel imports, demand dispersion, and international price discrimination," Journal of International Economics, Elsevier, Elsevier, vol. 37(3-4), pages 167-195, November.
  11. Keith E. Maskus, 2000. "Intellectual Property Rights in the Global Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 99, July.
  12. repec:reg:wpaper:258 is not listed on IDEAS
  13. Valletti, Tommaso M., 2006. "Differential pricing, parallel trade, and the incentive to invest," Journal of International Economics, Elsevier, Elsevier, vol. 70(1), pages 314-324, September.
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