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Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis

  • Tommaso Valletti

    ()

    (Imperial College London, University of Rome "Tor Vergata" and CEPR)

  • Stefan Szymanski

    ()

    (Imperial College London)

This paper analyses the issue of parallel trade (arbitrage) for products protected by intellectual property rights. We discuss a basic trade-off that arises between the ex post better allocation that typically occurs under parallel trade when demand dispersion is not too high, and the ex ante reduced product quality because of lower investment. We show that the size of the welfare effects is significantly affected by the presence of a "generic" product, which represents a form of competition for the monopolist. The monopolist will introduce a "fighting brand" to compete with the generic, which dilutes but does not eliminate the result on the adverse effects of parallel trade on investments.

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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 75.

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Length: 44
Date of creation: 01 Oct 2006
Date of revision:
Handle: RePEc:rtv:ceisrp:75
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  1. Abbott, Frederick M, 1998. "First Report (Final) to the Committee on International Trade Law of the International Law Association on the Subject of Parallel Importation," Journal of International Economic Law, Oxford University Press, vol. 1(4), pages 607-36, December.
  2. Hausman, J.A. & Mackie-Mason, J.K., 1988. "Price Discrimination And Patent Policy," Papers 88-13, Michigan - Center for Research on Economic & Social Theory.
  3. Keith E. Maskus, 2000. "Parallel Imports," The World Economy, Wiley Blackwell, vol. 23(9), pages 1269-1284, 09.
  4. Maskus, Keith E. & Yongmin Chen, 2000. "Vertical price control and parallel imports - theory and evidence," Policy Research Working Paper Series 2461, The World Bank.
  5. 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.
  6. Stokey, Nancy L, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 355-71, August.
  7. 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.
  8. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  9. Bae, Sang Hoo & Choi, Jay Pil, 2006. "A model of piracy," Information Economics and Policy, Elsevier, vol. 18(3), pages 303-320, September.
  10. Richardson, Martin, 2002. "An elementary proposition concerning parallel imports," Journal of International Economics, Elsevier, vol. 56(1), pages 233-245, January.
  11. Che, Yeon-Koo & Gale, Ian, 2000. "The Optimal Mechanism for Selling to a Budget-Constrained Buyer," Journal of Economic Theory, Elsevier, vol. 92(2), pages 198-233, June.
  12. Aidan Hollis, 2002. "The importance of being first: evidence from Canadian generic pharmaceuticals," Health Economics, John Wiley & Sons, Ltd., vol. 11(8), pages 723-734.
  13. Salant, Stephen W, 1989. "When Is Inducing Self-selection Suboptimal for a Monopolist?," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 391-97, May.
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