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Weak IPR and Imitation in the South and International Exhaustion of Patent Rights in the North for Innovated Drugs: A Policy Game

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  • Rajat Acharyya
  • Maria D.C. Garcia-Alonso

    ()

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, Parallel Imports) 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), 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 Department of Economics, University of Kent in its series Studies in Economics with number 0919.

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Date of creation: Oct 2009
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Handle: RePEc:ukc:ukcedp:0919

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Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
Phone: +44 (0)1227 764000
Fax: +44 (0)1227 827850
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Related research

Keywords: Patent protection; TRIPS; innovation; imitation; Parallel Imports; Pharmaceuticals;

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  1. Malueg, D.A. & Schwartz, M., 1993. "Parallel Imports, Demand Dispersion and International Price Discrimination," Papers 93-6, U.S. Department of Justice - Antitrust Division.
  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. Lutz, Stefan, 1996. "Vertical Product Differentiation and Entry Deterrence," CEPR Discussion Papers 1455, C.E.P.R. Discussion Papers.
  4. Panle Gia & Pinelopi K. Goldberg & Shubham Chaudhuri, 2006. "Estimating the Effects of Global Patent Protection in Pharmaceuticals: A Case Study of Quinolones in India," American Economic Review, American Economic Association, vol. 96(5), pages 1477-1514, December.
  5. Richardson, Martin, 2002. "An elementary proposition concerning parallel imports," Journal of International Economics, Elsevier, vol. 56(1), pages 233-245, January.
  6. Eugen Kovac & Kresimir Zigic, 2007. "International Competition in Vertically Differentiated Markets with Innovation and Imitation: Trade Policy versus Free Trade," CERGE-EI Working Papers wp336, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  7. Patricia M. Danzon, 1998. "The Economics of Parallel Trade," PharmacoEconomics, Springer Healthcare | Adis, vol. 13(3), pages 293-304.
  8. Lall, Sanjaya, 2003. "Indicators of the relative importance of IPRs in developing countries," Research Policy, Elsevier, vol. 32(9), pages 1657-1680, October.
  9. 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.
  10. Donnenfeld, S. & Weber, S., 1991. "Limit Qualities and Entry Deterrence," Papers 92-4, York (Canada) - Department of Economics.
  11. Gilbert, R. & Shapiro, C., 1988. "Optimal Patent Length And Breadth," Papers 28, Princeton, Woodrow Wilson School - Discussion Paper.
  12. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
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