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How stronger patent protection in India might affect the behavior of transnational pharaceutical industries

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  • Fink, Carsten

Abstract

To address questions about how stronger patent rights will affect India's pharmaceutical industry, the author simulates the effects of introducing such protection - as required by the World trade Organization Agreement on Trade-Related Intellectual Property Rights (TRIPs) - on market structure and static consumer welfare. (India must amend its current patent regime by 2005 and establish a transitional regime in the meanwhile.) The mode the author uses accounts for the complex demand structure for pharmaceutical goods. Consumers can choose among various drugs available to treat a specific disease. And for each drug, they have a choice among various differentiated brands. The author calibrates the model for two groups of drugs - quinolonnes and synthetic hypotensives - using 1992 brad-level data. In both groups, a subset of all available drugs was patent-protected in Western Europe but no India, where Indian manufacturers freely imitated them. The simulation analysis asks how the market structure for the two groups of drugs would have looked if India had granted patents for drugs. It does not take account of the fact that stronger patent protection will not apply to existing drugs and that the Indian government might be able to restrain high drug prices by imposing price controls or granting compulsory licenses. Still, the author concludes that if future drug discoveries are mainly new varieties of already existing therapeutic treatments, the effect of stronger patent protection is likely to be small, If newly discovered drugs are medicinal breakthroughs, however, prices may rise significantly above competitive levels and static welfare losses may be large. If demand is highly price-elastic, as is likely in India, profits for transnational corporations are likely to be small, but if private health insurance is permitted in India, reducing the price-sensitivity of demand, patent-holders'profits could increase substantially. In light of the fact that the TRIPS Agreement strengthens patent rights in most developing countries, pharmaceutical companies may do more research on, for example, tropical diseases.

Suggested Citation

  • Fink, Carsten, 2000. "How stronger patent protection in India might affect the behavior of transnational pharaceutical industries," Policy Research Working Paper Series 2352, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2352
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    References listed on IDEAS

    as
    1. Lanjouw, J.O., 1997. "The Introduction of Pharmaceutical Product Patents in India: "Heartless Exploitation of the Poor and Suffering"?," Papers 775, Yale - Economic Growth Center.
    2. Guifang Yang & Maskus, Keith E., 2003. "Intellectual property rights, licensing, and innovation," Policy Research Working Paper Series 2973, The World Bank.
    3. Richard E. Baldwin & Paul Krugman, 1986. "Market Access and International Competition: A Simulation Study of 16K Random Access Memories," NBER Working Papers 1936, National Bureau of Economic Research, Inc.
    4. Dunning, John H, 1979. "Explaining Changing Patterns of International Production: In Defence of the Eclectic Theory," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 41(4), pages 269-295, November.
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    Citations

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    Cited by:

    1. Padmashree Gehl Sampath, 2010. "Economic Aspects of Access to Medicines after 2005: Product Patent Protection and Emerging Firm Strategies in the Indian Pharmaceutical Industry," Working Papers id:3336, eSocialSciences.
    2. Lee Branstetter & Raymond Fisman & C. Fritz Foley & Kamal Saggi, 2007. "Intellectual Property Rights, Imitation, and Foreign Direct Investment: Theory and Evidence," NBER Working Papers 13033, National Bureau of Economic Research, Inc.
    3. Alka Chadha, 2005. "Trips and Patenting Activity: Evidence from the Indian Pharmaceutical Industry," Departmental Working Papers wp0512, National University of Singapore, Department of Economics.
    4. Francesco Laforgia & Fabio Montobbio & Luigi Orsenigo, 2007. "IPRs, technological and industrial development and growth: the case of the pharmaceutical industry," KITeS Working Papers 206, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Oct 2007.
    5. Carsten Fink, 2001. "Patent Protection, Transnational Corporations, and Market Structure: A Simulation Study of the Indian Pharmaceutical Industry," Journal of Industry, Competition and Trade, Springer, vol. 1(1), pages 101-121, March.
    6. 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.
    7. Chadha, Alka, 2009. "TRIPs and patenting activity: Evidence from the Indian pharmaceutical industry," Economic Modelling, Elsevier, vol. 26(2), pages 499-505, March.
    8. Chadha, Alka, 2009. "Product Cycles, Innovation, and Exports: A Study of Indian Pharmaceuticals," World Development, Elsevier, vol. 37(9), pages 1478-1483, September.
    9. Ramesh Govindaraj & Gnanaraj Chellaraj, 2002. "The Indian Pharmaceutical Sector : Issues and Options for Health Sector Reform," World Bank Publications, The World Bank, number 15231, April.
    10. Jaya Prakash Pradhan, "undated". "Global competitiveness of Indian Pharmaceutical Industry: Trends and Strategies," Working Papers 0605, Institute for Studies in Industrial Development (ISID).
    11. Maria Pluvia ZUNIGA & Emmanuel COMBE, 2002. "Introducing Patent Protection In The Pharmaceutical Sector:," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 16, pages 191-221.
    12. Li, Xuan, 2008. "The Impact of Higher Standards in Patent Protection for Pharmaceutical Industries under the TRIPS Agreement: A Comparative Study of China and India," WIDER Working Paper Series 036, World Institute for Development Economic Research (UNU-WIDER).

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