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The B.E. Journal of Economic Analysis & Policy

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Price Discrimination and Smuggling of AIDS Drugs

Richard A. Hornbeck1

1MIT,

Citation Information: Topics in Economic Analysis & Policy. Volume 5, Issue 1, ISSN (Online) 1538-0653, DOI: 10.2202/1538-0653.1404, September 2005

Publication History

Published Online:
2005-09-20

This article offers supplementary material which is provided at the end of the 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.

Keywords: price discrimination; differential pricing; AIDS; arbitrage; smuggling

Supplementary Article Materials

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