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Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis

Author

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  • Tommaso Valletti

    (Imperial College London, University of Rome "Tor Vergata" and CEPR)

  • Stefan Szymanski

    (Imperial College London)

Abstract

This paper analyses the issue of parallel trade (arbitrage) for products protected by intellectual property rights. We discuss a basic trade-off that arises between the ex post better allocation that typically occurs under parallel trade when demand dispersion is not too high, and the ex ante reduced product quality because of lower investment. We show that the size of the welfare effects is significantly affected by the presence of a "generic" product, which represents a form of competition for the monopolist. The monopolist will introduce a "fighting brand" to compete with the generic, which dilutes but does not eliminate the result on the adverse effects of parallel trade on investments.

Suggested Citation

  • Tommaso Valletti & Stefan Szymanski, 2006. "Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis," CEIS Research Paper 75, Tor Vergata University, CEIS.
    • Handle: RePEc:rtv:ceisrp:75
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Parallel trade; price discrimination; investments;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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