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Compulsory licensing and access to drugs

Author

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  • Charitini Stavropoulou

    ()

  • Tommaso Valletti

    ()

Abstract

Compulsory licensing allows the use of a patented invention without the owner’s consent, with the aim of improving access to essential drugs. The pharmaceutical sector argues that, if broadly used, it can be detrimental to innovation. We model the interaction between a company in the North that holds the patent for a certain drug and a government in the South that needs to purchase it. We show that both access to drugs and pharmaceutical innovation depend largely on the Southern country’s ability to manufacture a generic version. If the manufacturing cost is too high, compulsory licensing is not exercised. As the cost decreases, it becomes a credible threat forcing prices down, but reducing both access and innovation. When the cost is low enough, the South produces its own generic version and access reaches its highest value, despite a reduction in innovation. The global welfare analysis shows that the overall impact of compulsory licensing can be positive, even when accounting for its impact on innovation. We also consider the interaction between compulsory licensing and the strength of intellectual property rights, which can have global repercussions in other markets beyond the South. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • 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.
  • Handle: RePEc:spr:eujhec:v:16:y:2015:i:1:p:83-94
    DOI: 10.1007/s10198-013-0556-2
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Seifert, Jacob, 2013. "Compulsory Licensing, Innovation and Welfare," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79778, Verein für Socialpolitik / German Economic Association.
    2. Giorgio Matteucci & Pierfrancesco Reverberi, 2017. "Drug innovation, price controls, and parallel trade," International Journal of Health Economics and Management, Springer, vol. 17(2), pages 159-179, June.
    3. Samira Guennif, 2017. "Is Compulsory Licensing Bad for Public Health? Some Critical Comments on Drug Accessibility in Developing Countries," Applied Health Economics and Health Policy, Springer, vol. 15(5), pages 557-565, October.
    4. Senra de Morais, Rafael Pinho, 2017. "Compulsory licensing of pharmaceuticals by the developing south," Economics Letters, Elsevier, vol. 161(C), pages 74-77.
    5. Sarmah, Archita & De Giovanni, Domenico & De Giovanni, Pietro, 2020. "Compulsory licenses in the pharmaceutical industry: Pricing and R&D strategies," European Journal of Operational Research, Elsevier, vol. 282(3), pages 1053-1069.
    6. Jacob Seifert, 2015. "Welfare effects of compulsory licensing," Journal of Regulatory Economics, Springer, vol. 48(3), pages 317-350, December.

    More about this item

    Keywords

    IPRs; Pharmaceutical R&D; Compulsory licensing; Access to drugs; International exhaustion; F13; L12; O34;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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