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Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis

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Author Info
Tommaso Valletti () (Imperial College London, University of Rome "Tor Vergata" and CEPR)
Stefan Szymanski () (Imperial College London)

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Abstract

This paper analyses the issue of parallel trade (arbitrage) for products protected by intellectual property rights. We discuss a basic trade-off that arises between the ex post better allocation that typically occurs under parallel trade when demand dispersion is not too high, and the ex ante reduced product quality because of lower investment. We show that the size of the welfare effects is significantly affected by the presence of a "generic" product, which represents a form of competition for the monopolist. The monopolist will introduce a "fighting brand" to compete with the generic, which dilutes but does not eliminate the result on the adverse effects of parallel trade on investments.

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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 75.

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Length: 44
Date of creation: 01 Oct 2006
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Handle: RePEc:rtv:ceisrp:75

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Related research
Keywords: Parallel trade price discrimination investments

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Find related papers by JEL classification:
L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
O34 - Economic Development, Technological Change, and Growth - - Technological Change - - - Intellectual Property Rights

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bae, Sang Hoo & Choi, Jay Pil, 2006. "A model of piracy," Information Economics and Policy, Elsevier, vol. 18(3), pages 303-320, September. [Downloadable!] (restricted)
  2. Richardson, Martin, 2002. "An elementary proposition concerning parallel imports," Journal of International Economics, Elsevier, vol. 56(1), pages 233-245, January. [Downloadable!] (restricted)
  3. Jerry A. Hausman & Jeffrey K. MacKie-Mason, 1988. "Price Discrimination and Patent Policy," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 253-265, Summer. [Downloadable!] (restricted)
    Other versions:
  4. Keith E. Maskus & Yongmin Chen, 2004. "Vertical Price Control and Parallel Imports: Theory and Evidence," Review of International Economics, Blackwell Publishing, vol. 12(4), pages 551-570, 09. [Downloadable!] (restricted)
    Other versions:
  5. Stokey, Nancy L, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 355-71, August. [Downloadable!] (restricted)
  6. Justin P. Johnson & David P. Myatt, 2003. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," American Economic Review, American Economic Association, vol. 93(3), pages 748-774, June. [Downloadable!] (restricted)
    Other versions:
  7. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August. [Downloadable!] (restricted)
  8. Salant, Stephen W, 1989. "When Is Inducing Self-selection Suboptimal for a Monopolist?," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 391-97, May. [Downloadable!] (restricted)
  9. Abbott, Frederick M, 1998. "First Report (Final) to the Committee on International Trade Law of the International Law Association on the Subject of Parallel Importation," Journal of International Economic Law, Oxford University Press, vol. 1(4), pages 607-36, December.
  10. Aidan Hollis, 2002. "The importance of being first: evidence from Canadian generic pharmaceuticals," Health Economics, John Wiley & Sons, Ltd., vol. 11(8), pages 723-734. [Downloadable!]
  11. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ken Tabata & Testuya Shinkai & Satoru Tanaka & Makoto Okamura, 2005. "Parallel Imports, Drag Price Control and Pharmaceutical Innovation," Discussion Paper Series 26, School of Economics, Kwansei Gakuin University, revised Aug 2005. [Downloadable!]
  2. Margaret K. Kyle, 2007. "Strategic Responses to Parallel Trade," NBER Working Papers 12968, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Alfons Palangkaraya & Jongsay Yong, 2006. "Parallel Imports, Market Size and Investment Incentive," Melbourne Institute Working Paper Series wp2006n25, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
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