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Some Unintended Consequences of Parallel Trade in Pharmaceuticals
Author(s) -
Matteucci Giorgio,
Reverberi Pierfrancesco
Publication year - 2016
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.2689
Subject(s) - licensee , arbitrage , investment (military) , economics , dual (grammatical number) , unintended consequences , economic surplus , microeconomics , monetary economics , business , financial economics , market economy , art , license , literature , politics , political science , welfare , law
It is widely argued that international arbitrage, or parallel trade (PT), in patented drugs may increase consumer surplus in the relevant countries but at the expense of R&D investment. We show how the effects of PT depend on the vertical contract (linear pricing or dual pricing) between the manufacturer and the foreign licensee or distributor and on whether and how drug prices are regulated and reimbursed. We find that, contrary to what policy makers generally predict, we should be more concerned with the impact of PT on aggregate consumer surplus than on R&D investment. Copyright © 2014 John Wiley & Sons, Ltd.