Parallel trade and its impact on incentives to invest in product quality
It is widely argued that international arbitrage, or parallel trade (PT), trades off static against dynamic efficiency so that, compared with a national exhaustion regime of intellectual property rights, worldwide consumer surplus rises at the expense of R&D investment. We show that this common wisdom is rather the exception than the rule. Indeed, quality investment often rises under international exhaustion, since it strengthens vertical differentiation between the original product and parallel imports. In this case, there is no trade-off at all, so that encouraging PT improves welfare, or the reverse trade-off occurs where investment increases and consumer surplus declines, while PT has ambiguous welfare effects. We find that, when allowed to use dual pricing, the R&D firm artificially restores national exhaustion. We also find that the expected trade-off never occurs under non-linear pricing and when the foreign country is regulated, although in such cases welfare rises when PT is banned.
|Date of creation:||May 2011|
|Contact details of provider:|| Phone: +390677274140|
Fax: +39 0677274129
Web page: http://www.dis.uniroma1.it
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Szymanski, Stefan & Valletti, Tommaso, 2005.
"Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis,"
CEPR Discussion Papers
5022, C.E.P.R. Discussion Papers.
- Tommaso Valletti & Stefan Szymanski, 2006. "Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis," CEIS Research Paper 75, Tor Vergata University, CEIS.
- Malueg, David A. & Schwartz, Marius, 1994. "Parallel imports, demand dispersion, and international price discrimination," Journal of International Economics, Elsevier, vol. 37(3-4), pages 167-195, November.
- Malueg, D.A. & Schwartz, M., 1993. "Parallel Imports, Demand Dispersion and International Price Discrimination," Papers 93-6, U.S. Department of Justice - Antitrust Division.
- Keith E. Maskus & Yongmin Chen, 2004. "Vertical Price Control and Parallel Imports: Theory and Evidence," Review of International Economics, Wiley Blackwell, vol. 12(4), pages 551-570, 09.
- Maskus, Keith E. & Yongmin Chen, 2000. "Vertical price control and parallel imports - theory and evidence," Policy Research Working Paper Series 2461, The World Bank.
- Margaret K. Kyle, 2007. "Pharmaceutical Price Controls and Entry Strategies," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 88-99, February.
- Li, Changying & Robles, Jack, 2007. "Product innovation and parallel trade," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 417-429, April.
- Ganslandt, Mattias & Maskus, Keith E., 2007. "Vertical distribution, parallel trade, and price divergence in integrated markets," European Economic Review, Elsevier, vol. 51(4), pages 943-970, May.
- Ganslandt, Mattias & Maskus, Keith E., 2005. "Vertical Distribution, Parallel Trade, and Price Divergence in Integrated Markets," Working Paper Series 639, Research Institute of Industrial Economics.
- Justin P. Johnson & David P. Myatt, 2003. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," American Economic Review, American Economic Association, vol. 93(3), pages 748-774, June.
- David P. Myatt & Justin P. Johnson, 2002. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," Economics Series Working Papers 105, University of Oxford, Department of Economics.
- Raff, Horst & Schmitt, Nicolas, 2007. "Why parallel trade may raise producers' profits," Journal of International Economics, Elsevier, vol. 71(2), pages 434-447, April.
- Horst Raff & Nicolas Schmitt, 2005. "Why Parallel Trade may Raise Producers Profits," CESifo Working Paper Series 1503, CESifo Group Munich.
- Raff, Horst & Schmitt, Nicolas, 2005. "Why Parallel Trade May Raise Producers' Profits," Economics Working Papers 2005,07, Christian-Albrechts-University of Kiel, Department of Economics.
- Panos Kanavos & Joan Costa-Font, 2005. "Pharmaceutical parallel trade in Europe: stakeholder and competition effects," Economic Policy, CEPR;CES;MSH, vol. 20(44), pages 751-798, October.
- J. S. Chard & C. J. Mellor, 1989. "Intellectual Property Rights and Parallel Imports," The World Economy, Wiley Blackwell, vol. 12(1), pages 69-84, 03. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:aeg:wpaper:2011-5. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Antonietta Angelica Zucconi)
If references are entirely missing, you can add them using this form.