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International trade in branded and generic products
Author(s) -
Choi Yoonho,
Choi E. Kwan
Publication year - 2018
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12589
Subject(s) - competition (biology) , product (mathematics) , developing country , economics , business , industrial organization , international trade , government (linguistics) , international economics , commerce , ecology , linguistics , philosophy , geometry , mathematics , biology , economic growth
This paper investigates international competition between an innovating firm in a developed economy and generic producers in developing countries. Initially, the innovating firm in a developed country exports the branded product to a developing country. Once a patent expires or when the government grants a licence to local firms to produce generic equivalents, the innovating firm is forced to compete with generic producers. Under certain conditions, entry of generic firms reduces the price of the branded product and a generic competition paradox does not occur. There are two possible long‐run equilibrium solutions. In one scenario, the innovating firm which exports the branded product and the local generic producers may coexist in the developing country. In the other scenario, the brand producer exits and a trade reversal may occur, that is, the developing country may even export the generic products to the developed economy.