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Price Discrimination and Smuggling of AIDS Drugs


  • Hornbeck Richard A.

    () (MIT)


Patent-holding pharmaceutical companies are shown to be imperfectly able to charge differential prices for AIDS drugs due to the potential for black market exchange. Thus, greater segmentation in the international market through additional barriers to smuggling would induce firms to charge lower prices for AIDS drugs in poorer countries. Without these additional barriers, widespread drug distribution through mandated lower prices or weakened patent protection in the developing world would result in smuggling, undercutting demand in developed markets and reducing firms’ research incentives. By contrast, further market segmentation would allow policy makers to go beyond the induced price cuts and remove patent protection in many markets where the benefits to increased distribution would likely outweigh the losses to research incentives.

Suggested Citation

  • Hornbeck Richard A., 2005. "Price Discrimination and Smuggling of AIDS Drugs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-27, September.
  • Handle: RePEc:bpj:bejeap:v:topics.5:y:2005:i:1:n:16

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    References listed on IDEAS

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    Cited by:

    1. Charitini Stavropoulou & Tommaso Valletti, 2015. "Compulsory licensing and access to drugs," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(1), pages 83-94, January.
    2. Alexandrov, Alexei & Deb, Joyee, 2012. "Price discrimination and investment incentives," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 615-623.

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