Estimating the Effects of Global Patent Protection in Pharmaceuticals

Under the TRIPS agreement, WTO members are required to enforce product patents for pharmaceuticals. The debate about the merits of this requirement has been extremely contentious. Many low income economies claim that patent protection for pharmaceuticals will result in substantially higher prices for medicines, with adverse consequences for the health and well-being of their citizens. On the other hand, research-based global pharmaceutical companies, argue that prices are unlikely to rise significantly because most patented products have therapeutic substitutes. In this paper we empirically investigate the basis of these claims. Central to the ongoing debate is the structure of demand for pharmaceuticals in poor economies where, because health insurance coverage is so rare, almost all medical expenses are met out-of-pocket. Using a detailed product-level data set from India, we estimate key price and expenditure elasticities and supply-side parameters for the fluoroquinolones sub-segment of the systemic anti-bacterials (i.e., antibiotics) segment of the Indian pharmaceuticals market. We then use these estimates to carry out counterfactual simulations of what prices, profits, and co