Parallel Imports and Price Controls
Gene M. Grossman
Princeton University - Woodrow Wilson School of Public and International Affairs; Princeton University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
Edwin L.-C. Lai
Hong Kong University of Science & Technology
CEPR Discussion Paper No. 5779
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.
Number of Pages in PDF File: 31
Keywords: Pharmaceuticals, reimportation, intellectual property, TRIPs
JEL Classification: F13, O34
Date posted: September 27, 2006
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