A BEJEAP Topics article.

Abstract

Patent-holding pharmaceutical companies are shown to be imperfectly able to charge differential prices for AIDS drugs due to the potential for black market exchange. Thus, greater segmentation in the international market through additional barriers to smuggling would induce firms to charge lower prices for AIDS drugs in poorer countries. Without these additional barriers, widespread drug distribution through mandated lower prices or weakened patent protection in the developing world would result in smuggling, undercutting demand in developed markets and reducing firms’ research incentives. By contrast, further market segmentation would allow policy makers to go beyond the induced price cuts and remove patent protection in many markets where the benefits to increased distribution would likely outweigh the losses to research incentives.

Submitted: January 28, 2005 · Accepted: September 14, 2005 · Published: September 20, 2005

Originally published in Topics in Economic Analysis & Policy.

Recommended Citation

Hornbeck, Richard A. (2005) "Price Discrimination and Smuggling of AIDS Drugs," Topics in Economic Analysis & Policy: Vol. 5 : Iss. 1, Article 16.
Available at: http://www.bepress.com/bejeap/topics/vol5/iss1/art16

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