title: The consumer welfare implications of governmental policies and firm strategy in markets for medicines.
abstract: This paper empirically examines the consumer welfare implications of changes in government policies related to patent protection and compulsory licensing in the Indian market for oral anti-diabetic (OAD) medicines. In contrast to previous studies on the impact of pharmaceutical patents in India, we observe, and estimate the welfare effects accruing from differential pricing and voluntary licensing strategies of patent-holding innovator firms. Three novel molecules belonging to the dipeptidyl peptidase-4 (DPP-4) inhibitor class of OADs have been launched in India by the patent holders, at lower prices than those prevailing in the developed countries. Using aggregate market transaction data, we structurally estimate demand and supply and use the parameter estimates in our model to simulate consumer welfare under various counterfactual scenarios. Our results suggest that the introduction of DPP-4 inhibitors generated a consumer surplus gain of around 7.6 cents per day for a typical DPP-4 inhibitor user under the existing differential pricing and voluntary licensing strategies. If the innovators decide to price at developed-country levels, this surplus is eliminated almost entirely. The issuance of compulsory licensing does not always improve consumer welfare because if innovators defer or delay the introduction of new drugs in response, the loss in consumer welfare could be substantial.
authors.affiliation: Indian Institute of Management Bangalore, Bangalore, 560076, India. Electronic address: chirantan.chatterjee@iimb.ernet.in.
authors.forename: Chirantan
authors.initials: C
authors.lastname: Chatterjee
authors.affiliation: Japan Fair Trade Commission (on leave from the Institute of Developing Economies, Japan External Trade Organization), Japan. Electronic address: kuboken@gmail.com.
authors.forename: Kensuke
authors.initials: K
authors.lastname: Kubo
authors.affiliation: Indian Institute of Management Ahmedabad, Ahmedabad, 380015, India. Electronic address: viswanath@iimahd.ernet.in.
authors.forename: Viswanath
authors.initials: V
authors.lastname: Pingali
mesh_terms: D003257:Consumer Product Safety / Q000331:legislation & jurisprudence; D003365:Costs and Cost Analysis; D017277:Drug Approval / Q000191:economics / Q000331:legislation & jurisprudence*; D004345:Drug Industry / Q000191:economics / Q000331:legislation & jurisprudence*; D006291:Health Policy / Q000191:economics* / Q000639:trends; D006801:Humans; D007004:Hypoglycemic Agents / Q000191:economics* / Q000592:standards / Q000600:supply & distribution; D007194:India; D007880:Legislation, Drug / Q000191:economics / Q000592:standards; D018803:Models, Economic; D010330:Patents as Topic / Q000331:legislation & jurisprudence*; D004364:Pharmaceutical Preparations; D011306:Prescription Fees / Q000331:legislation & jurisprudence / Q000639:trends*; D012044:Regression Analysis; D012107:Research Design
chemical_list: D007004:Hypoglycemic Agents; D004364:Pharmaceutical Preparations
keywords: Compulsory licensing; Differential pricing; Indian pharmaceutical market; Intellectual property; Pharmaceutical demand estimation