The impact of parallel imports on investments in cost-reducing research and development

Li, Changying; Maskus, Keith E.

doi:10.1016/j.jinteco.2005.07.006

Cited by 67 publications

(65 citation statements)

References 16 publications

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“…Novartis reacted by announcing that it would have to carefully evaluate whether to launch new drugs in India in the future. 17 Our results are indeed still valid for any regulations in the South that have country spillovers. This makes government policies interdependent and forces every government to consider the consequences of its actions on global incentives to invest.…”

Section: Discussionsupporting

confidence: 56%

“…and Mellor, 1989; Danzon and Towse, 2003;Li and Maskus, 2006), prefer Ramseytype differential pricing as the best way to improve access to low-price drugs while still 2 Parallel imports are in fact part of the "free trade" policy. Official European statistics show that in 2002 the total share of parallel imports reached 20% of the high-price pharmaceutical markets (Kanavos and Costa-Font, 2005).…”

Section: Accepted Manuscript 2 International Exhaustion and Parallel mentioning

confidence: 99%

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Pharmaceutical innovation and parallel trade

Bennato

Valletti

2014

International Journal of Industrial Organization

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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 responds by allowing parallel imports from the South.

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Section: Discussionsupporting

confidence: 56%

Section: Accepted Manuscript 2 International Exhaustion and Parallel mentioning

confidence: 99%

Pharmaceutical innovation and parallel trade

Bennato

Valletti

2014

International Journal of Industrial Organization

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“…12 Spending in North, E N , is the difference between national income Y N and national savings, or between national income and national investment. National income comprises labor income, the return to research capital, and the flow of monopoly profits paid as dividends, so…”

Section: A Model Of Ongoing Innovationmentioning

confidence: 99%

“…Their arguments seem to find support in more formal analyses, which offer only a few minor caveats. For example, Li and Maskus (2006) develop a model in which parallel trade creates competition in the home market between a manufacturer and its own distributor in a foreign market. They find that the distortions associated with parallel imports reduce the manufacturer's incentive to invest in cost reducing innovation at a prior stage.…”

Section: Introductionmentioning

confidence: 99%

Parallel imports and price controls

Grossman

Lai

2008

The RAND J of Economics

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Price controls create opportunities for international arbitrage. Many have argued that such arbitrage, if tolerated, will undermine intellectual property rights and dull the incentives for investment in research-intensive industries such as pharmaceuticals. We challenge this orthodox view and show, to the contrary, that the pace of innovation often is faster in a world with international exhaustion of intellectual property rights than in one with national exhaustion. The key to our conclusion is to recognize that governments will make different choices of price controls when parallel imports are allowed by their trade partners than they will when they are not.JEL Classification: O34, F13

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“…The first paper to marry the concept of PI competition to incentives for R&D in a theoretical model is Li and Maskus (2006). They worked within the VPC model set out by Maskus and Chen (2002) but added an R&D stage prior to the competition between distributors.…”

Section: A Basic Models Of Randd and Parallel Tradementioning

confidence: 99%

Intellectual Property Rights, Parallel Imports and Strategic Behavior

Maskus

Ganslandt

2007

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe existence of parallel imports (PI) raises a number of interesting policy and strategic questions, which are the subject of this survey article. For example, parallel trade is essentially arbitrage within policy-integrated markets of IPR-protected goods, which may have different prices across countries. Thus, we analyze fully two types of price differences that give rise to such arbitrage. First is simple retail-level trade in horizontal markets because consumer prices may differ. Second is the deeper, and more strategic, issue of vertical pricing within the common distribution organization of an original manufacturer selling its goods through wholesale distributors in different markets. This vertical price control problem presents the IPR-holding firm a menu of strategic choices regarding how to compete with PI. Another strategic question is how the existence of PI might affect incentives of IPR holders to invest in research and development (R&D). The global research-based pharmaceutical firms, for example, strongly oppose any relaxation of restrictions against PI of drugs into the United States, arguing that the potential reduction in profits would diminish their ability to innovate. There is a close linkage here with price controls for medicines, which are a key component of national health policies but can give rise to arbitrage through PI. We also discuss the complex economic relationships between PI and other forms of competition policy, or attempts to limit the abuse of market power offered by patents and copyrights. Finally, we review the emerging literature on how policies governing PI may affect international trade agreements.

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The impact of parallel imports on investments in cost-reducing research and development

Cited by 67 publications

References 16 publications

Pharmaceutical innovation and parallel trade

Pharmaceutical innovation and parallel trade

Parallel imports and price controls

Intellectual Property Rights, Parallel Imports and Strategic Behavior

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