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Parallel imports, drug innovation and international patent protection: a policy game

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  • Acharyya, Rajat
  • Garcia-Alonso, Maria

Abstract

We consider a policy game between a high-income country hosting a drug innovator and a low-income country hosting a drug imitator. The low-income country chooses whether to enforce an International Patent Regime (strict IPR) or not (weak IPR) and the high-income country chooses whether to allow parallel imports (PI) of on-patent drugs or market based discrimination (MBD). We show that, for a moderately high imitation cost, both (Strict IPR, PI) and (Weak IPR, MBD) emerge as the Subgame Perfect Nash Equilibrium (SPNE) policy choices. For relatively smaller imitation costs, (Weak IPR, MBD) is the unique SPNE policy choice. The welfare properties reveal that although innovation may be higher at the (Strict IPR, PI) policy regime, the market coverage and national welfare of the low-income country, and the total welfare are all lower. This opens up the efficiency issue of implementing TRIPS and at the same time allowing international exhaustion of patent rights.

Suggested Citation

  • Acharyya, Rajat & Garcia-Alonso, Maria, 2009. "Parallel imports, drug innovation and international patent protection: a policy game," MPRA Paper 30159, University Library of Munich, Germany, revised 2010.
  • Handle: RePEc:pra:mprapa:30159
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    References listed on IDEAS

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    1. 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.
    2. Acharyya, Rajat, 2005. "Quality discrimination among income constrained consumers," Economics Letters, Elsevier, vol. 86(2), pages 245-251, February.
    3. Stefan Lutz, 1997. "Vertical product differentiation and entry deterrence," Journal of Economics, Springer, vol. 65(1), pages 79-102, February.
    4. Panle Gia & Pinelopi K. Goldberg & Shubham Chaudhuri, 2006. "Estimating the Effects of Global Patent Protection in Pharmaceuticals: A Case Study of Quinolones in India," American Economic Review, American Economic Association, vol. 96(5), pages 1477-1514, December.
    5. Richardson, Martin, 2002. "An elementary proposition concerning parallel imports," Journal of International Economics, Elsevier, vol. 56(1), pages 233-245, January.
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    8. Richard Gilbert & Carl Shapiro, 1990. "Optimal Patent Length and Breadth," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 106-112, Spring.
    9. Sohn, Soo Jeoung, 2008. "The Two Contrary Effects of Imitation," Economic Modelling, Elsevier, vol. 25(1), pages 75-82, January.
    10. Shabtai Donnenfeld & Shlomo Weber, 1995. "Limit Qualities and Entry Deterrence," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 113-130, Spring.
    11. Gene M. Grossman & Edwin L.-C. Lai, 2008. "Parallel imports and price controls," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 378-402.
    12. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    13. Alka Chadha, 2005. "Trips and Patenting Activity: Evidence from the Indian Pharmaceutical Industry," Departmental Working Papers wp0512, National University of Singapore, Department of Economics.
    14. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    15. Acharyya, Rajat & Garcia-Alonso, Maria D.C., 2006. "Self-interested international income redistribution and access to health care innovation," European Journal of Political Economy, Elsevier, vol. 22(2), pages 322-336, June.
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    Cited by:

    1. Acharyya, Rajat & García-Alonso, María D.C., 2012. "Income based price subsidies and parallel imports," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 25-41.
    2. repec:spr:ecogov:v:18:y:2017:i:3:d:10.1007_s10101-017-0190-z is not listed on IDEAS

    More about this item

    Keywords

    Income Inequality; Intellectual Property Rights; India; TRIPS; Parallel Imports; Pharmaceuticals;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • I1 - Health, Education, and Welfare - - Health

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