An analysis of the ambiguous welfare effects of parallel trade freedom
The regulation of parallel trade has become a critical issue in the global trading system, as the welfare effects of parallel trade freedom are generally ambiguous. In this paper we investigate the welfare effects of parallel trade freedom for low, intermediate, and high trade costs and different levels of market size. By analyzing a game played between a domestic monopolistic manufacturer of pharmaceuticals and a foreign exclusive distributor we, first, show that parallel trade reduces the profit of the manufacturer and his incentives to invest in R&D. In addition to this first finding, we show, secondly, that the question as to whether parallel trade freedom has positive or negative welfare properties depends on the level of trade cost and the heterogeneity of countries in terms of market size. In particular, we find that parallel trade freedom has a positive effect on global welfare if countries are sufficiently heterogeneous in terms of market size and if trade costs are intermediate and low, respectively. Surprisingly, this result even holds in a situation where parallel trade freedom implies the closure of the smaller market. If, however, countries are virtually homogenous in terms of market size, parallel trade freedom may be detrimental to global welfare for specific levels of trade costs.
|Date of creation:||10 Mar 2010|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
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.:
- 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.
- 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.
- Gallini, Nancy T. & Hollis, Aidan, 1999. "A contractual approach to the gray market," International Review of Law and Economics, Elsevier, vol. 19(1), pages 1-21, March.
- Nancy T. Gallini & Aidan Hollis, 1996. "A Contractual Approach to the Gray Market," Working Papers gallini-96-01, University of Toronto, Department of Economics.
- Li, Changying & Maskus, Keith E., 2006. "The impact of parallel imports on investments in cost-reducing research and development," Journal of International Economics, Elsevier, vol. 68(2), pages 443-455, March.
- Richardson, Martin, 2002. "An elementary proposition concerning parallel imports," Journal of International Economics, Elsevier, vol. 56(1), pages 233-245, January.
- Stefan Szymanski & Tommaso Valletti, 2005. "Parallel trade, price discrimination, investment and price caps," Economic Policy, CEPR;CES;MSH, vol. 20(44), pages 705-749, October.
- 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, September.
- Maskus, Keith E. & Yongmin Chen, 2000. "Vertical price control and parallel imports - theory and evidence," Policy Research Working Paper Series 2461, The World Bank.
- Brekke, Kurt R. & Grasdal, Astrid L. & Holms, Tor Helge, 2009. "Regulation and pricing of pharmaceuticals: Reference pricing or price cap regulation?," European Economic Review, Elsevier, vol. 53(2), pages 170-185, February.
- Brekke, Kurt R. & Grasdal, Astrid L. & Holmås, Tor Helge, 2006. "Regulation and Pricing of Pharmaceuticals: Reference Pricing or Price Cap Regulation?," Working Papers in Economics 14/06, University of Bergen, Department of Economics.
- Kurt R. Brekke & Astrid L. Grasdal & Tor Helge HolmÃ¥s, 2007. "Regulation and Pricing of Pharmaceuticals: Reference Pricing or Price Cap Regulation?," CESifo Working Paper Series 2059, CESifo Group Munich.
- Li, Changying & Robles, Jack, 2007. "Product innovation and parallel trade," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 417-429, April.
- Carsten Fink & Keith E. Maskus, 2005. "Intellectual Property and Development : Lessons from Recent Economic Research," World Bank Publications, The World Bank, number 7443, December.
- Edwin Mansfield, 1986. "Patents and Innovation: An Empirical Study," Management Science, INFORMS, vol. 32(2), pages 173-181, February.
- Harhoff, Dietmar & Reitzig, Markus, 2004. "Determinants of opposition against EPO patent grants--the case of biotechnology and pharmaceuticals," International Journal of Industrial Organization, Elsevier, vol. 22(4), pages 443-480, April.
- Harhoff, Dietmar & Reitzig, Markus, 2002. "Determinants of Opposition Against EPO Patent Grants - The Case of Biotechnology and Pharmaceuticals," CEPR Discussion Papers 3645, C.E.P.R. Discussion Papers.
- 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.
- Gene M. Grossman & Edwin C.-L. Lai, 2006. "Parallel Imports and Price Controls," NBER Working Papers 12423, National Bureau of Economic Research, Inc.
- Grossman, Gene & Lai, Edwin, 2006. "Parallel Imports and Price Controls," CEPR Discussion Papers 5779, C.E.P.R. Discussion Papers.
- J. S. Chard & C. J. Mellor, 1989. "Intellectual Property Rights and Parallel Imports," The World Economy, Wiley Blackwell, vol. 12(1), pages 69-84, March.
- Keith E. Maskus, 2000. "Parallel Imports," The World Economy, Wiley Blackwell, vol. 23(9), pages 1269-1284, September.
- Valletti, Tommaso M., 2006. "Differential pricing, parallel trade, and the incentive to invest," Journal of International Economics, Elsevier, vol. 70(1), pages 314-324, September.
- Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-875, September.
- Ganslandt, Mattias & Maskus, Keith E., 2004. "Parallel imports and the pricing of pharmaceutical products: evidence from the European Union," Journal of Health Economics, Elsevier, vol. 23(5), pages 1035-1057, September.
- Ganslandt, Mattias & Maskus, Keith E., 2004. "Parallel Import and the Pricing of Pharmaceutical Products: Evidence from the European Union," Working Paper Series 622, Research Institute of Industrial Economics.
- Harhoff, Dietmar & Scherer, Frederic M. & Vopel, Katrin, 2003. "Citations, family size, opposition and the value of patent rights," Research Policy, Elsevier, vol. 32(8), pages 1343-1363, September.
- Keith E. Maskus, 2000. "Intellectual Property Rights in the Global Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 99, November.
- Izabela Jelovac & Catalina Bordoy, 2005. "Pricing and Welfare Implications of Parallel Imports in the Pharmaceutical Industry," International Journal of Health Economics and Management, Springer, vol. 5(1), pages 5-21, January. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:35704. 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: (Joachim Winter)
If references are entirely missing, you can add them using this form.