Parallel trade, price regulation, and investment incentives

Giorgio Matteucci () and Pierfrancesco Reverberi ()
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Giorgio Matteucci: Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"
Pierfrancesco Reverberi: Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"

No 2014-16, DIAG Technical Reports from Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"

Abstract: We study the case where parallel trade (PT) stems from government price controls in a foreign country. We remove the presumption that PT blunts dynamic efficiency if the government has partial commitment ability. We model the R&D firm’s option to serve the foreign country, and find that PT may improve quality, depending on preferences for quality. Improving quality may be a sufficient condition for PT to raise global welfare ex ante. Under PT, quality may be higher with than without price controls.We discuss the role of bargaining power in price negotiations.

Keywords: Parallel trade; Price regulation; R&D investment; Intellectual property rights (search for similar items in EconPapers)
Date: 2014
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