Innovation the loser from book 'expropriation'

International price differentials are vital to the-present arrangements in profitably developing new drugs.

Pharmaceutical firms have historically earned high prices in the unregulated US market but are often forced to accept lower prices where buyer monopolies are in place, as in Australia arid Canada. And the-firms themselves, for humanitarian reasons or simply to maximise profits, will often sell patented products at cheaper prices to Third World countries.

Increasingly, price, convergence undermines this. Once the products can be imported (or, as is often the case, re-imported) into the US, multiple prices are replaced by a single-price structure. Where this results in the US price becoming the sole price, customers outside the US will pay more and the supplier will see reduced sales. If prices shift towards those in the lower-priced markets, volumes will rise, though at the expense of profits.

Copyright owners of books and CDs may well have to acquiesce in the erosion of parallel importing protections and the reduced innovation incentive this entails. For pharmaceutical firms, market segmentation and price discrimination is even more important. The end of price discrimination would require revolutionary changes in their approach to research and development.