Catalina Bordoy

Pricing and Welfare Implications of Parallel Imports in the Pharmaceutical Industry

In this paper we investigate the implications of permitting parallel imports of pharmaceuticals produced by a monopoly, from one country to another. We use a model where countries differ in the patients’ level of co-payment for buying pharmaceuticals, and patients differ in the utility obtained from the consumption of pharmaceuticals. We show that the effects of parallel imports on total welfare are as follows: On the one hand, when countries differ in their health system only, parallel imports decrease total welfare; On the other hand, when countries differ in the health needs of their patients only, parallel imports enhance total welfare.

In-House Versus Ex-House

Innovation researchers over the past decade have increasingly stressed the importance of external knowledge sources to the ability of firms to innovate. These include user-producer networks (Lundvall, 1992), collaborative research with other firms or universities (Hagedoornet al2000) informal and formal links with universities (Mansfield, 1991; Pavitt, 1991), and contracted-out research (Howells, 1999). Several researchers have argued that innovative activities will increasingly depend on external knowledge sources (Gibbons, 1994; Georghiou, 1998), with Antonelli (1999) suggesting that “the systematic use of technological cooperation” will become “the dominant form” of producing new knowledge. Coombset al. (2001) refer to “distributed innovation processes” in which many different firms and institutions are involved in an innovation. One of the main justifications for the increasing importance of cooperation is the belief that modern technology is growing in complexity and consequently beyond the abilities of a single firm (Kash and Rycroft, 1994). Under these conditions, firms must collaborate in order to develop competitive new products and processes.