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On price discrimination, parallel trade and the availability of patented drugs in developing countries

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  • Mazumdar, Mainak
  • Banerjee, Dyuti S.

Abstract

This paper examines the effect of product Patent Act and parallel trade on the availability of an essential drug in the developing countries. Price discrimination by a Multinational Corporation (MNC) alleviates the problem of non-availability of the drug in a developing country compared to uniform pricing strategy. Incorporating an upstream–downstream market structure we show that in the presence of parallel trade ‘a form of arbitrage’ by traders the MNC cannot successfully discriminate the prices for its product. The analysis however, indicate that if the market size of the developing nation is relatively large, then with Cournot competition among the traders, the manufacturer earns higher profit by allowing parallel trade than by perfectly discriminating the prices for its product. Under Bertrand competition, the strategy to allow parallel trade always dominates the strategy to restrain it.

Suggested Citation

  • Mazumdar, Mainak & Banerjee, Dyuti S., 2012. "On price discrimination, parallel trade and the availability of patented drugs in developing countries," International Review of Law and Economics, Elsevier, vol. 32(1), pages 188-195.
    • Handle: RePEc:eee:irlaec:v:32:y:2012:i:1:p:188-195
    DOI: 10.1016/j.irle.2012.01.001
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F19 - International Economics - - Trade - - - Other
    • K19 - Law and Economics - - Basic Areas of Law - - - Other
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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