Pharmaceutical innovation and parallel trade

Anna Rita Bennato and Tommaso Valletti

International Journal of Industrial Organization, 2014, vol. 33, issue C, 83-92

Abstract: This paper proposes a North–South model to study the interaction between price regulation policies and parallel trade, with a particular focus on the pharmaceutical sector. We show that, under parallel trade, R&D investment can rise only when the South government takes into full account its impact both on investment and on the firm's decision to supply the regulated country. This arises because of a complete withdrawal from price regulation. When policy choices are endogenized, indeed the South wants to achieve this level of full commitment when it is large in size. When instead it is smaller in size, the South chooses an intermediate form of commitment whereby it anticipates its effect only on local distribution and delivery, but not on global R&D investment. As a response to these credible levels of price control commitments, the North reacts by allowing parallel imports from the South.

Keywords: IPRs; Parallel trade; Pharmaceutical R&D; Price regulation (search for similar items in EconPapers)
JEL-codes: F13 L12 O34 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (21)

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Working Paper: Pharmaceutical Innovation and Parallel Trade (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:33:y:2014:i:c:p:83-92

DOI: 10.1016/j.ijindorg.2014.02.009

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