A pharma manufacturer enters a developing country with a new drug after investing some R&D in the first period. The firm can be subjected to a compulsory license mechanism that allows a generic manufacturer to produce an imitated version of the patented product in exchange of a fixed royalty. When the patent expires, a traditional price competition ensues between the patent-holder and the generic manufacturer. We compare two deterministic scenarios wherein the patent-holder has full information regarding the compulsory license. We identify the conditions under which the license is socially and economically beneficial. Our analyses suggest that the patent-holder is seldom economically better-off. We next model a stochastic compulsory license decision rule whereby the patent-holder is exposed to a certain probability that the compulsory license is issued. We show that uncertainty renders the patent-holder more willing to operate in that market.
Compulsory licenses in the pharmaceutical industry: Pricing and R&D strategies / De Giovanni, D.; De Giovanni, Pietro; Archita, S. - In: EUROPEAN JOURNAL OF OPERATIONAL RESEARCH. - ISSN 0377-2217. - 282:3(2020), pp. 1053-1069. [10.1016/j.ejor.2019.10.021]
Compulsory licenses in the pharmaceutical industry: Pricing and R&D strategies
De Giovanni, P.
;
2020
Abstract
A pharma manufacturer enters a developing country with a new drug after investing some R&D in the first period. The firm can be subjected to a compulsory license mechanism that allows a generic manufacturer to produce an imitated version of the patented product in exchange of a fixed royalty. When the patent expires, a traditional price competition ensues between the patent-holder and the generic manufacturer. We compare two deterministic scenarios wherein the patent-holder has full information regarding the compulsory license. We identify the conditions under which the license is socially and economically beneficial. Our analyses suggest that the patent-holder is seldom economically better-off. We next model a stochastic compulsory license decision rule whereby the patent-holder is exposed to a certain probability that the compulsory license is issued. We show that uncertainty renders the patent-holder more willing to operate in that market.File | Dimensione | Formato | |
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Compulsory licenses in the Pharmaceutical industry Pricing and R&D strategies.pdf
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