International Price Discrimination Research Articles

Strategic Patenting and Evergreening in Pharmaceutical Sector: Competition Law as a Panacea

This is a dissertation submitted by me for my Masters of Law at Queen Mary University of London. It is a comprehensive study of the pharmaceutical sector in relation to consumer protection whilst considering the excessive price affliction on the availability of affordable health services. It focus on anti-competitive agreements like cartels, parallel pricing, predatory pricing by pharmaceutical companies including other aspects under competition law and patients being fettered by patents under intellectual property laws. Drugs being an essential commodity have been part of unfair-trade practices and its implication is leading to extensive price discrimination on a global level. The study highlights the outlook of World Health Organization, Medicines Sans Frontiers and other organizations on international price discrimination and ban of several drugs in various countries while consumption in other leading to disparity in health care. This will involve the legal steps initiated by the international organizations for consumer welfare. It will be a comparative analysis of implementation of laws in different jurisdictions for availability of drugs at fair price which will include the legal hurdles in promotion and adoption of low-cost generic drugs by various jurisdictions. The primary objective of this dissertation is capitalist approach of pharmaceutical companies in defeating the larger public interest and the discrepancies of law leading to ethical misconducts. Context • Chapter I Medicines and analysis of problems related to Pharmaceutical sector 1.1 The significance and need for medicines 1.2 Types of medicines present in the market and their features 1.3 Participants involved in the pharmaceutical markets 1.4 Pricing and accessibility 1.5 Examining the instances related to patents in Pharmaceutical sector • Chapter II Overview of IP Laws in the Pharmaceutical sector 2.1 The role of IP Laws and the theory of innovation (Protection of Patentee) 2.2 Evergreening as distinctive innovation 2.3 Strategic patenting by Pharmaceutical Companies 2.4 Effect on the pricing of drugs and the availability of generic medicines due to patent protections 2.5 Role of TRIPS Agreement created by WTO • Chapter III Overview of Competition Law in Pharmaceutical sector 3.1 Meaning and its liaison with IP Laws 3.2 Relevant market for pharmaceuticals 3.3 Coherence of IP Laws and Competition Law 3.4 Predatory pricing and Strategic patenting 3.5 Other anti-competitive agreements • Chapter IV International directives on Pharmaceutical sector 4.1 Guidelines for developing countries 4.2 Jurisdictional analysis 4.2.1 EU 4.2.2 USA 4.2.3 India 4.3 WHO • Conclusion

International effects of national regulations: External reference pricing and price controls

Under external reference pricing (ERP) the price that a government permits a firm to charge in its market depends upon the firm's prices in other countries. In a two-country (home and foreign) model where demand is asymmetric across countries, we show that home's unilaterally optimal ERP policy permits the home firm to engage in a threshold level of international price discrimination above which it is (just) willing to export. If the firm faces a price control abroad or bargains over price with the foreign government, an ERP policy can even yield higher home welfare than a direct price control.

Patent Exhaustion Regime and International Production Sharing: Winners and Losers?

On May 30, 2017, the Supreme Court held that the initial authorized sale of a patented item within or outside the U.S. “exhausts” all rights of the patentee to that item under the Patent Act. This decision goes against the Government’s position that a foreign sale authorized by the U.S. patentee should exhaust U.S. patent rights by default unless the patentee expressly reserved those rights. We examine how a shift in Northern regime from presumptive international exhaustion (PIE)---which presumes that a foreign sale triggers exhaustion but permits express-reservation of rights---to absolute international exhaustion (AIE)---which effectively precludes express-reservation of rights---impacts global welfare and its distribution. PIE subjects the firms that source in the South and sell in the North to the risk of a patent infringement lawsuit but allows the firms to price discriminate internationally. AIE allows the firms to avoid a patent infringement lawsuit but also precludes international price discrimination. Firms differ in the extent to which they engage in international fragmentation of their production process. We find that being engaged in the international fragmentation of production is neither a necessary nor a sufficient condition for a firm to prefer AIE over PIE. Nonetheless, it is still true that Northern firms with high cost share of the components that can be outsourced to the South tend to prefer AIE, while firms with low cost share of those components tend to prefer PIE. A shift from PIE to AIE increases fragmentation, lowers production costs, and eliminates North-South price discrimination in the final good. Global welfare rises. Welfare also rises in the North but falls in the South if the impact on firms' incentive for production fragmentation is weak, cost savings from sourcing in the South are low, or the Northern and Southern markets are dissimilar in size and average willingness to pay for each good.

College Textbook Publishing

Based on the author’s many years of experience in college textbook publishing, this article discusses three topics relevant to the textbook-publishing business: (a) the motivations of the author and publisher regarding revenue maximization versus profit maximization, (b) the reimportation of textbooks as an impediment to the international price-discrimination practices of publishers, and (c) the effects of mergers among publishers. Each of these topics is an application of undergraduate microeconomic theories and principles.

Direct and indirect price discrimination in the automotive industries of the European Union

Using a panel dataset comprising of 51 models across 21 European Union member states, I estimate the effects of country-specific factors that make price discrimination profitable. Taking advantage of cross-country heterogeneities, I find that a domestic brand bias, per capita income, and income inequalities lead to significantly different prices across borders. The role of income inequalities is supported by a theoretical model of indirect price discrimination at the national level. We therefore conclude that not only direct international price discrimination, but also indirect national price discrimination is responsible for the observed price differentials across international borders, which are not likely to fully converge as long as the exclusive dealership system is in place, and significant demand-side differences still remain.

Summary of General Discussion on “Streamlining Non-Tariff Measures in ASEAN: The Way Forward”

The general discussion focused on the difficulty of measuring non-tariff measures (NTMs) and determining which NTMs may be non-tariff barriers (i.e., measures that reduce trade intentionally). As an example, Jayant Menon suggested anti-dumping actions, which are NTMs that have been used as non-tariff barriers. Dumping is a situation of international price discrimination, where the price of a product when sold in an importing country is lower than the price of that product in the market of the exporting country. An import-competing firm that is losing market share may claim that dumping is hurting the country's industry to have countervailing measures imposed. Such measures typically remain in place until a dispute has been settled, which in some cases can take years. Moreover, Menon noted that monitoring the incidence of non-tariff measures can be difficult as many non-tariff measures are easily implemented. He gave the example of two countries, where a comprehensive free trade agreement had led to growing trade until one country imposed a requirement for imports to arrive at a designated port.Somkiat Tangkitvanich cautioned that the authors’ conclusion regarding the incidence of NTMs was relatively low in ASEAN as it was not supported by other evidence. Bhanupong Nidhipraba pointed out that the incidence of NTMs is large in certain industries in Thailand. He also noted, however, that many of these NTMs are quality measures to meet the high product standards in export markets. He continued that consumers benefit from NTMs if they increase the quality of products or reduce negative externalities. Furthermore, the imposition of NTMs may have long-run effects on the supply and demand of products that are likely to be different from the short run.

Elasticity of substitution and anti-dumping decisions

Motivated by a monopolistic competition model with market segmentation and international price discrimination, this paper analyzes whether there is an inverse relation between the elasticity of substitution and final ad valorem anti-dumping duties across products. We test this for 19 countries using data on anti-dumping from the Global Antidumping Database and US data at the 6-digit HS product level for the elasticity of substitution from Broda and Weinstein (Q J Econ 121(2):541–585, 2006). The results in our empirical investigation support a negative relation between the elasticity of substitution and the final ad valorem anti-dumping duties.

UNIVERSAL ACCESS, PARALLEL TRADE AND INCENTIVES TO INNOVATE

ABSTRACTGovernments often subsidize poorer groups in society to ensure their access to new drugs. We analyse the optimal income‐based price subsidies in a strategic environment. We show that universal access is less likely to arise when price arbitrage prevents international price discrimination. When this is not the case, under some income ranges, bilateral universal coverage can be supported by equilibrium subsidies together with bilateral partial provision. In such a case, international health policy coordination becomes relevant. We also show that asymmetric universal access to medicines across countries can arise, even when countries are ex ante symmetric, when international price discrimination is possible and governments cannot design subsidies proportional to either income or quality.

Testing the Market Integration Process in the European Car Sector: Evidence from Pricing‐to‐market Behaviour

AbstractIn this study, we investigate the process of the European car market integration by analysing the evolution of cross‐country differences in the degree of pricing‐to‐market behaviour of United Kingdom exporters. We estimate these country differences by exploiting statistical information for pre‐tax retail prices and for export unit values. Conclusions from both independent data sets are, in general, quite consistent. Results support the claim that, in the period before the Block Exemption Regulation (1400/2002) came fully into force, international price discrimination was an important source of car price dispersion within the euro area. For a more recent period, we found that estimated deviations in pricing‐to‐market behaviour across destinations have become lower. This convergence suggests that car market integration was progressively improved at the end of the last decade.

Equilibrium parallel import policies and international market structure

In a North–South vertically differentiated duopoly we analyze (i) the effects of parallel import (PI) policies on price competition and (ii) the interdependence of national PI policies. Prices can be higher in the North if both countries permit PIs relative to when only the South does. If governments maximize national welfare and demand asymmetry across countries is sufficiently large, the North forbids PIs to ensure its firm sells in the South and international price discrimination — the South's most preferred market outcome — obtains. When demand structures are relatively similar across countries, the North permits PIs and uniform pricing — its most preferred outcome — results.

Real Exchange Rate Volatility and Disconnect: An Empirical Investigation

A two-country model that incorporates many features proposed in the New Open Economy Macroeconomics literature is developed in order to replicate the volatility of the real exchange rate and its disconnect with macroeconomic variables. The model is estimated using data for the euro area and the U.S. and Bayesian methods. The analysis delivers the following results: (a) international price discrimination, home bias and shocks to the uncovered interest rate parity (UIRP) condition are key features to replicate the variance of the real exchange rate; (b) home bias, shocks to the UIRP condition and to production technologies help replicating the disconnect; (c) distribution services intensive in local nontradeables are an important source of international price discrimination.

Pricing-to-Market and the Failure of Absolute PPP

The authors show that deviations from the law of one price in tradable goods are an important source of violations of absolute PPP across countries. Using highly disaggregated export data, they document systematic international price discrimination: at the U.S. dock, U.S. exporters ship the same good to low-income countries at lower prices. This pricing-to-market is about twice as important as any local non-traded inputs, such as distribution costs, in explaining the differences in tradable prices across countries. The authors propose a model of consumer search that generates pricing-to-market. In this model, consumers in low-income countries have a comparative advantage in producing non-traded, non-market search activities and therefore are more price sensitive than consumers in high-income countries. They present cross-country time use evidence and evidence from U.S. export prices that are consistent with the model.

Pricing-to-Market and the Failure of Absolute PPP

We show that deviations from the law of one price in tradable goods are an important source of violations of absolute purchasing power parity. Using highly disaggregated export data, we document systematic international price discrimination: at the US dock, low-income countries pay lower prices. This pricing-to-market is about twice as important as local nontraded inputs for differences in tradable prices. We propose a model of consumer search and pricing-to-market in which consumers in low-income countries have a comparative advantage in nontraded, nonmarket search activities. Evidence from cross-country time-use studies and US export prices supports the model. (JEL E31, F14)

Liberalizing a Distribution System: The European Car Market

We quantify the competitive effects of liberalizing the selective and exclusive distribution system in the European car market, based on a model of oligopoly pricing with differentiated products. We consider two possible competitive effects from liberalization: (i) the creation of international intrabrand competition (cross-border trade), which will result in a reduction of international price discrimination; and (ii) a possible cumulative effect arising from a strengthening of national intrabrand competition, which would result in reduced double marginalization. We find that the reduction in international price discrimination mainly redistributes consumer gains across countries; it has a positive but modest effect on total welfare. If liberalization also has the cumulative effect of reducing double marginalization, the welfare effects are much higher. Finally, we find that the effects of liberalization on the manufacturers' profits are either small or positive. This finding implies that international price discrimination, and softening competition through a double marginalization mechanism, should not be interpreted as main profit motives for the previous distribution system, but only as unintended side effects. Hence, the industry rationale for maintaining the previous distribution system should be sought in other areas. (JEL: F15, L42)

A macroeconomic model of international price discrimination

This paper builds a baseline two-country model of real and monetary transmission in the presence of optimal international price discrimination by firms. Distributing traded goods to consumers requires nontradables, making the price elasticity of demand country-specific and a function of the exchange rate. Profit-maximizing monopolistic firms drive a wedge between prices across countries, optimally dampening the response of import and consumer prices to exchange-rate movements. We derive general equilibrium expressions for the pass-through into import and consumer prices, tracing the differential impact of real and monetary shocks on marginal cost and markup fluctuations through the exchange rate.

Violating Purchasing Power Parity

This paper demonstrates that deviations from the law of one price are an important source of violations of absolute PPP across countries. Using highly disaggregated U.S. export data, we document evidence of systematic international price discrimination based on the local wage of consumers in the destination market. We show that most violations from absolute PPP can also be explained by international differences in wages. We find very little additional explanation is due to differences in income per capita. Developing and calibrating a model of pricing-to-market based on search frictions and international productivity differences, we show that pricing-to-market accounts for 62 percent of the relationship between national price levels and income and 100 percent of the deviation from the law of one price. In contrast, the textbook Harrod-Balassa-Samuelson effect accounts for the remaining 38 percent of the relationship between national price levels and income.

Persistent dumping, competition and welfare

In the case of persistent dumping, welfare effects are ambiguous. Therefore, the existing international trade theory cannot provide a clear rationale for policies to prohibit international price discrimination. Through a two-stage game on the endogenous foreign monopolist's dumping decision, this paper determines when persistent dumping will negatively affect the home country's total welfare in an oligopolistic domestic market in the absence of any anti-dumping duties. Key variables of interest in this research include: (i) production costs; (ii) the degree of substitutability among the products; and (iii) the number of domestic firms. With a linear demand and constant marginal cost functions, the model demonstrates that persistent dumping will reduce total welfare if the domestic market is relatively less concentrated, or if the products are close substitutes for each other.

Trade policy and parallel imports

We consider the simultaneous choice of parallel importing regime and tariff policy in a setting of international price discrimination by a monopolist. We show that an importer's optimal tariff decreases when parallel imports (PIs) are permitted. This may lead to the monopolist benefiting from PIs. Allowing PIs is always attractive for a country whether or not it sets an optimal tariff. In a political economy modification, we show that the prohibition of PIs is more likely to emerge (where it would not otherwise) the more the government cares about lobby contributions and the greater are profits from price discrimination.

Macroeconomics of International Price Discrimination

This paper builds a baseline two-country model of real and monetary transmission under optimal international price discrimination. Distributing traded goods to consumers requires nontradables; because of distributive trade, the price elasticity of export demand depends on the exchange rate. Profit-maximizing monopolistic firms drive a wedge between wholesale and retail prices across countries. This entails possibly large deviations from the law of one price and incomplete pass-through on import prices. Yet, consistent with expenditure-switching effects, a nominal depreciation generally worsens the terms of trade. Moreover, the exchange rate and the terms of trade can be more volatile than fundamentals. For plausible ranges of the distribution margin, there can be multiple steady states, whereas large differences in nominal and real exchange rates across equilibria translate into small differences in consumption, employment and the price level. Finally, we show that with competitive goods markets international policy cooperation is redundant even under financial autarky.

Macroeconomics of International Price Discrimination

This paper builds a baseline two-country model of real and monetary transmission under optimal international proce discrimination. Distributing traded goods to consumers reuires nontradables; because of distributive trade, the proce elasticity of export demand depends on the exchange rate. Profit-maximizing monopolistic firms drive a wedge between wholesale and retial proces across countries. This entails possibly large deviations from the law of one price and incomplete pass-through on import prices. Yet, consistent with expenditure-switching effects, a nominal repreciation generally worsens the terms of trade. Moreover, the exchange rate and the terms of trade can be more volatile than fundamentals. For plausible ranges of the distribution margin, there can be multiple steady states, whereas large differences in nominal and real exhange rates across equilibria translate into small differences in consumption, employment and the price level. Finally, we show that with competitive goods markets international policy cooperation is redundant even under financial autarky. JEL Classification: F3, F4