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Optimal price regulations in international pharmaceutical markets with generic competition

In: Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy

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  • Difei Geng
  • Kamal Saggi

Abstract

In a two-country (home and foreign) model in which the home producer of a branded pharmaceutical product faces generic competition in each market, we analyze home’s optimal policy choices regarding two major types of price regulations: external reference pricing (ERP) and direct price controls. Home’s nationally optimal ERP policy lowers domestic price while maintaining the firm’s export incentive. This ERP policy results in a negative international price spillover that the foreign country can (partly) offset via a local price control. Generic competition in either market reduces home’s welfare gain from instituting an ERP policy. Weaker competition abroad or a greater weight on firm profits relative to consumer surplus in home’s welfare function makes it more likely that home prefers an ERP policy to a price control. While international integration of national generic markets can improve welfare, such is not the case if it causes home to relax its ERP policy.

Suggested Citation

  • Difei Geng & Kamal Saggi, 2023. "Optimal price regulations in international pharmaceutical markets with generic competition," World Scientific Book Chapters, in: Kamal Saggi (ed.), Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy, chapter 18, pages 415-433, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813233027_0018
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    More about this item

    Keywords

    International Technology Transfer; Multinational Firms; Trips; Foreign Direct Investment; Oligopolistic Competition; Vertical Contracts; Intellectual Property Rights;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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