Parallel Imports and Price Controls

30 Pages Posted: 13 Aug 2006 Last revised: 31 Oct 2006

See all articles by Gene M. Grossman

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 (HKUST) - Department of Economics

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Date Written: August 2006

Abstract

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.

Suggested Citation

Grossman, Gene M. and Lai, Edwin L.-C., Parallel Imports and Price Controls (August 2006). NBER Working Paper No. w12423. Available at SSRN: https://ssrn.com/abstract=923346

Gene M. Grossman (Contact Author)

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

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Edwin L.-C. Lai

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China

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