Abstract
In a two-country (home and foreign) model in which the home producer of a branded pharmaceutical product faces generic competition in each market, we analyze home's optimal policy choices regarding two major types of price regulations: external reference pricing (ERP) and direct price controls. Home's nationally optimal ERP policy lowers domestic price while maintaining the firm's export incentive. This ERP policy results in a negative international price spillover that the foreign country can (partly) offset via a local price control. Generic competition in either market reduces home's welfare gain from instituting an ERP policy. Weaker competition abroad or a greater weight on firm profits relative to consumer surplus in home's welfare function makes it more likely that home prefers an ERP policy to a price control. While international integration of national generic markets can improve welfare, such is not the case if it causes home to relax its ERP policy.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
