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Introduction to parallel trade

Abstract

Parallel traded goods are genuine products brought into a market without prior authorisation of the intellectual property right or trademark holder. Parallel trade occurs if international price differences for identical products are high and a policy of regional or international exhaustion of the respective property right has been implemented in the high price country. In a world without trade barriers, prices converge to a global equilibrium, provided transaction costs are nil and competition among arbitrage seekers is perfect. The price convergence benefits consumers in the high demand country who are able to increase their private consumption as prices go down. Consumers in the low demand country, on the other hand, lose as rising prices force them to lower their consumption. Global consumer surplus is generally higher under uniform pricing than under price discrimination. Generally — because consumers in the low demand country may not be able to afford the world market price. Under such circumstances, consumers in the high demand country end up paying the price which would have been charged under market segmentation, while consumers in the low demand country are unable to buy the product. International exhaustion of property rights may, therefore, reduce global welfare if income disparities are high. Representatives of the drug industry argue that parallel trade reduces global welfare by impairing their ability to develop new products. Allowing parallel imports of pharmaceuticals would therefore be a trade-off between immediate and future customer value. If savings from parallel trade are high and research efficiency of the industry is low, governments should opt for a policy of international or regional exhaustion. If savings are low and research efficiency high, however, national exhaustion of patent rights would be the appropriate policy.

Keywords

Price Discrimination Uniform Price World Market Price Income Disparity Global Welfare 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Copyright information

© Birkhäuser Verlag AG 2008

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