Kamal Saggi (Vanderbilt) will present:

"External Reference Pricing Policies, Price Controls, and International Patent Protection"

at 12:15pm on Tuesday, April 28, 2015 in 051 Volanakis (Buchanan) TUCK

Lunch will be served at noon.


There are still a few available slots. Please sign up for a meeting, or at:

https://docs.google.com/spreadsheets/d/1XQ7Z_JK1Xp58Aq4p0XFAue-N__6fbxAIQWSVXi8fVic/edit?usp=sharing



If you will be attending the Lunch Seminar and have not already done so, please RSVP to Richard Rielly at TUCK so he can order the appropriate amount of food.

[log in to unmask]<mailto:[log in to unmask]>


Abstract


This paper analyzes the economics of external reference pricing (ERP), a policy under which the price that a firm is allowed to charge in one country depends upon its prices in other countries. We develop a model where a single firm produces a patented product that it can potentially sell in two countries: home and foreign. The firm has an incentive to price discriminate internationally because home consumers are assumed to have a greater willingness to pay for its product than foreign consumers. We show that home's optimal ERP policy is to permit a level of international price discrimination at which the firm is just willing to export. If the foreign market becomes relatively less lucrative (either due to decline in demand or an increase in trade barriers), home chooses to grant the firm more freedom to price discriminate internationally. Even though home's ERP policy generates a negative price spillover for foreign consumers, its equilibrium policy maximizes joint welfare of the two countries. When foreign can impose a price control (PC) on the firm, home's ERP policy not only undermines the PC by raising the minimum price at which the firm is willing to sell abroad, it also partly transmits it back to domestic consumers. It is jointly optimal to constrain the firm from charging its monopoly price abroad while simultaneously giving it greater freedom to price discriminate internationally than home chooses to grant in the absence of the foreign PC. We also consider a scenario where the lack of foreign patent protection generates competition from a competitively priced generic. Such competition induces home to loosen its ERP policy. Finally, we find that some degree of international cooperation - over either domestic ERP policy of the foreign PC control or both instruments - is necessary to ensure that welfare increases due to the strengthening of foreign patent protection.






########################################################################

To unsubscribe from the ECONOMICS-SEMINARS list, click the following link:
https://listserv.dartmouth.edu/scripts/wa.exe?SUBED1=ECONOMICS-SEMINARS