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Parallel imports, drug innovation and international patent protection: a policy game

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  • Acharyya, Rajat
  • Garcia-Alonso, Maria

Abstract

We consider a policy game between a high-income country hosting a drug innovator and a low-income country hosting a drug imitator. The low-income country chooses whether to enforce an International Patent Regime (strict IPR) or not (weak IPR) and the high-income country chooses whether to allow parallel imports (PI) of on-patent drugs or market based discrimination (MBD). We show that, for a moderately high imitation cost, both (Strict IPR, PI) and (Weak IPR, MBD) emerge as the Subgame Perfect Nash Equilibrium (SPNE) policy choices. For relatively smaller imitation costs, (Weak IPR, MBD) is the unique SPNE policy choice. The welfare properties reveal that although innovation may be higher at the (Strict IPR, PI) policy regime, the market coverage and national welfare of the low-income country, and the total welfare are all lower. This opens up the efficiency issue of implementing TRIPS and at the same time allowing international exhaustion of patent rights.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30159.

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Date of creation: 2009
Date of revision: 2010
Handle: RePEc:pra:mprapa:30159

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Keywords: Income Inequality; Intellectual Property Rights; India; TRIPS; Parallel Imports; Pharmaceuticals;

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  1. Acharyya, Rajat, 2005. "Quality discrimination among income constrained consumers," Economics Letters, Elsevier, vol. 86(2), pages 245-251, February.
  2. Stefan Lutz, 1997. "Vertical product differentiation and entry deterrence," Journal of Economics, Springer, vol. 65(1), pages 79-102, February.
  3. Shubham Chaudhuri & Pinelopi K. Goldberg & Panle Jia, 2003. "Estimating the Effects of Global Patent Protection in Pharmaceuticals: A Case Study of Quinolones in India," NBER Working Papers 10159, National Bureau of Economic Research, Inc.
  4. Donnenfeld, S. & Weber, S., 1991. "Limit Qualities and Entry Deterrence," Papers 92-4, York (Canada) - Department of Economics.
  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.
  6. Sohn, Soo Jeoung, 2008. "The Two Contrary Effects of Imitation," Economic Modelling, Elsevier, vol. 25(1), pages 75-82, January.
  7. Grossman, Gene & Lai, Edwin, 2006. "Parallel Imports and Price Controls," CEPR Discussion Papers 5779, C.E.P.R. Discussion Papers.
  8. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  9. Richardson, Martin, 2002. "An elementary proposition concerning parallel imports," Journal of International Economics, Elsevier, vol. 56(1), pages 233-245, January.
  10. 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).
  11. 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.
  12. Lall, Sanjaya, 2003. "Indicators of the relative importance of IPRs in developing countries," Research Policy, Elsevier, vol. 32(9), pages 1657-1680, October.
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