Working Paper: NBER ID: w12423
Authors: Gene M. Grossman; Edwin L.C. Lai
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.
Keywords: parallel imports; price controls; innovation; intellectual property rights; pharmaceuticals
JEL Codes: O34; F13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| parallel imports (F10) | increase in controlled prices (E64) |
| increase in controlled prices (E64) | increase in overall innovation rates (O39) |
| parallel imports (F10) | increase in consumer surplus (D11) |
| parallel imports (F10) | faster pace of innovation (O39) |
| international exhaustion of IPR (O34) | faster pace of innovation (O39) |
| parallel imports (F10) | mitigate free-riding behavior (H40) |