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Parallel Imports, Drag Price Control and Pharmaceutical Innovation

Author

Listed:
  • Ken Tabata

    (Kobe City University of Foreign Studies)

  • Testuya Shinkai

    (Kwansei Gakuin University)

  • Satoru Tanaka

    (Kobe City University of Foreign Studies)

  • Makoto Okamura

    (Hiroshima University)

Abstract

This paper examines how parallel importation influences pharmaceutical innovation and the welfare of the economy, when crossnational drug price differentials occur not only because of demand elasticity based factors, but also governmental drug price control based factors. By explicitly considering the governmental drug price control baaed factors, this paper shows that parallel importation may enhance pharmaceutical innovation, when the bargaining power of a foreign government is strong and the price elasticity of demand in the foreign market is small. We also show that the increase in R&D induced by parallel imports may even increase the consumer surplus of a country with high demand elasticities and which could face relatively low drug prices, if parallel imports were not allowed.

Suggested Citation

  • Ken Tabata & Testuya Shinkai & Satoru Tanaka & Makoto Okamura, 2005. "Parallel Imports, Drag Price Control and Pharmaceutical Innovation," Discussion Paper Series 26, School of Economics, Kwansei Gakuin University, revised Aug 2005.
    • Handle: RePEc:kgu:wpaper:26
    as

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    File URL: http://192.218.163.163/RePEc/pdf/kgdp26.pdf
    File Function: First version, 2005
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    References listed on IDEAS

    as
    1. Malueg, David A. & Schwartz, Marius, 1994. "Parallel imports, demand dispersion, and international price discrimination," Journal of International Economics, Elsevier, vol. 37(3-4), pages 167-195, November.
    2. Tommaso M. Valletti & Stefan Szymanski, 2006. "Parallel Trade, International Exhaustion And Intellectual Property Rights: A Welfare Analysis," Journal of Industrial Economics, Wiley Blackwell, vol. 54(4), pages 499-526, December.
    3. Valletti, Tommaso M., 2006. "Differential pricing, parallel trade, and the incentive to invest," Journal of International Economics, Elsevier, vol. 70(1), pages 314-324, September.
    4. Michael Kremer, 2002. "Pharmaceuticals and the Developing World," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 67-90, Fall.
    5. Pecorino, Paul, 2002. "Should the US allow prescription drug reimports from Canada?," Journal of Health Economics, Elsevier, vol. 21(4), pages 699-708, July.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Parallel Imports; Pharmaceutical Innovation; Drug Price Control;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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