Optimal price regulations in international pharmaceutical markets with generic competition

Difei Geng and Kamal Saggi

Chapter 18 in Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy, 2023, pp 415-433 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In a two-country (home and foreign) model in which the home producer of a branded pharmaceutical product faces generic competition in each market, we analyze home’s optimal policy choices regarding two major types of price regulations: external reference pricing (ERP) and direct price controls. Home’s nationally optimal ERP policy lowers domestic price while maintaining the firm’s export incentive. This ERP policy results in a negative international price spillover that the foreign country can (partly) offset via a local price control. Generic competition in either market reduces home’s welfare gain from instituting an ERP policy. Weaker competition abroad or a greater weight on firm profits relative to consumer surplus in home’s welfare function makes it more likely that home prefers an ERP policy to a price control. While international integration of national generic markets can improve welfare, such is not the case if it causes home to relax its ERP policy.

Keywords: International Technology Transfer; Multinational Firms; Trips; Foreign Direct Investment; Oligopolistic Competition; Vertical Contracts; Intellectual Property Rights (search for similar items in EconPapers)
JEL-codes: F21 (search for similar items in EconPapers)
Date: 2023
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