nach oben

Theory and Decision

13.03.2024

Compulsory license threats in a signaling game of drug procurement

verfasst von: Damien Besancenot, Samira Guennif

Erschienen in: Theory and Decision

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

This paper presents a signaling game to formalize the interaction between a developing country and a pharmaceutical firm negotiating the supply of an essential medicine. During these negotiations, the government may threaten the firm with the issue of a compulsory license to force price reductions. However, the threat may be a poor signaling device of the government’s willingness to issue a compulsory license. Our model shows that, for a government, the threat may be used in various ways to fool the pharmaceutical firm about its real objectives. This result is consistent with stylized facts showing that threat strategies are used to obtain very opposite outcomes.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Nur mit Berechtigung zugänglich

Both countries issued “government use” or “public non-commercial use”, so without the patentee’s consent and for the purpose of supplying free medicines in hospitals.

More recently, studying the dynamics of the bargaining process between a pharmaceutical firm and a government, Bond and Samuelson (2019) show the influence of private information about the firm’s payoffs on the timing of the negotiations.

It is important to note that once a VL is negotiated and the terms are set, the country will no longer be able to resort to a CL. The patent holder has demonstrated goodwill and agreed to a VL on reasonable terms, as specified in the TRIPS agreement.

If the government had a fixed budget to spend on drug provision (see for instance Ramani & Urias, 2015) lower prices would allow a wider access to the drug for the population. For the government, this would imply to consider price and quantity as two simultaneous objectives in the negotiation. However, as quantity are inversely proportional to prices, the focus on the sole price simplifies the analysis without loss of generality.

In this simple setting, there is no reaction from the Lab following a CL. A firm could for instance respond by threatening not to market the product. We do not consider this alternative possibility of threat. The government is the last player in our model.

The VLs include commercial clauses that allow the patent holder to determine the price of the generic (royalty rate and supply of raw material at a predetermined price). In the case of antiretrovirals (ARV), as the raw material represents on average 80% of the production costs, prices and profits are always higher under a VL than under a CL. In comparison, under CL, the Government détermines the royalty rate paid to the patentee by the recipient and lets the latter search for the most competitive raw material supplier.

In a general case, profit margins and prices under a monopoly regime are higher than under a VL and even higher than under a CL, thus: \(0<\beta<\alpha<\delta <1\). However, the model has no need for assumptions about these parameters and can be solved under general assumptions about the ranking of the Lab’s profit. The normalization \(\delta =1\) only plays a role in Eq. (8), where it allows an easier comparison of prices and profits in the specific case considered in the main section.

For a Government, a CL would be more favorable than a VL offered by the Lab if \(P_{VL} {>} P_{CL}+C\). However, as mentioned above, it is impossible for the Government to impose a CL when the Lab voluntarily grants a license.

The solutions of the game, with \(\alpha P_{VL}<P_{M}^{L}(T),\) with \(P_{M}^{L}(T)<\alpha P_{VL}<P_{VL}<P_{M}^{L}(N)\) or in the case \(P_{M}^{H}(T)<\alpha P_{VL}<P_{VL}<P_{M}^{H}(N)\), under assumption \(c<C^{W}-C^{S}\) and, for \(c>C^{W}-C^{S},\) in the case \(P_{M}^{H}(T)<\alpha P_{VL}<P_{VL}<P_{M}^{L}(N)\) may be obtained upon request to the authors. In each of these cases, separating equiibria are impossible and hybrid or pooling equilibria may exist according to more or less restrictive conditions on the values of q.

Under the alternative out-of-equilibrium beliefs, the equilibrium does not exist. As the use of the no-threat strategy would reveal a Strong government and would be followed by the granting of a VL, a Weak government would always prefer not to threaten the Lab.

With the alternative out-of-equilibrium beliefs, \(P[\tau =S|s=T]=0\), the equilibrium is impossible. If a Strong government uses the threat, the Lab will respond by setting the monopoly price and the Government will grant a CL. The public surplus is then higher than the expected surplus reached in the no threat case.

See President Clinton’s speech at the 1999 WTO Ministerial Conference in Seattle and the confirmation by administration Bush that the USA would not react if WTO members use the flexibilities provided by the TRIPS in case of major health crises.

International donors, such as the World Bank, only agree to fund the supply of ARVs prequalified by the WHO, considered to be safe, effective and of high quality.

Brazil had built a generic industry able to produce generic ARVs. Retaliation threats from the laboratories on foreign governments were ineffective as Brazil could answer with other retaliatory measures such as rises in tariffs (Bird & Cahoy, 2008).

Since 2003 and for a couple of years, Brazil and Merck negotiated the terms of a VL for the benefit of Farmanguinhos (the public laboratory). Brazil finally granted a CL, considering that Merck was only trying to buy time and stay in a monopoly position as long as possible (Urias, 2015) In Malaysia, after the ‘Government Use Authorization’ was issued in October 2003 and pending its effective use in the form of ARV imported from India, in 2004 a local private company contacted GSK to obtain a VL (Ling, 2006). In this case, the negotiation for a VL occurred after the granting of a CL. These specific cases are out of the scope of our model.

Avery, C. (1998). Strategic jump bidding in English auctions. The Review of Economic Studies, 65(2), 185–210.MathSciNetCrossRef

Baker, B. K. (2005). Roche’s Secret, Sub-Licenses for Tamiflu will not help poor. TWN Info Service on Health Issues, No. 14, 9 November.

Beall, R., & Kuhn, R. (2012). Trends in compulsory licensing of pharmaceuticals since the Doha Declaration: A database analysis. PLoS Medicine, 9(1), e1101154.CrossRef

Beall, R., Kuhn, R., & Attaran, A. (2015). Compulsory licensing often did not produce lower prices for antiretrovirals compared to international procurement. Health Affairs, 34(3), 493–501.CrossRefPubMed

Benoliel, D., & Salama, B. M. (2010). Towards an intellectual property bargaining theory: The post-WTO era. University of Pennsylvania Journal of International Law, 32(1), 265–368.

Bird, R. C., & Cahoy, D. R. (2008). The impact of compulsory licensing on foreign direct investment: A collective bargaining approach. American Business Law Journal, 45(2), 283–330.CrossRef

Bond, E., & Saggi, K. (2014). Compulsory licensing, price controls, and access to patented foreign products. Journal of Development Economics, 109, 217–228.CrossRef

Bond, E., & Samuelson, L. (2019). Bargaining with private information and the option of a compulsory license. Games and Economic Behavior, 114, 83–100.MathSciNetCrossRef

Cherian, N. G. (2016). Using compulsory licenses to access pharmaceuticals: A cross case analysis on outcomes. Department of Health Management and Health Economics, University of Oslo.

Ederer, F. (2010). Feedback and motivation in dynamic tournaments. Journal of Economics and Management Strategy, 19, 733–769.

Fisher, W. W., & Rigamonti, C. P. (2005). The South Africa AIDS controversy: A case study in patent law and policy. Harvard Law School, 56p.

Germano, S. (2007). Compulsory licensing of pharmaceuticals in Southeast Asia: Paving the way for greater use of the TRIPS flexibility in low-and middle-income countries. UMKC L Rev, 273, 286–287.

Guennif, S. (2017). Evaluating the usefulness of compulsory licensing in developing countries: A comparative study of Thai and Brazilian experiences regarding access to AIDS treatments. Developing World Bioethics, 17(2), 90–99.CrossRefPubMed

Hörner, J., & Sahuguet, N. (2007). Costly signalling in auctions. The Review of Economic Studies, 74(1), 173–206.MathSciNetCrossRef

Krikorian, G. (2014). La propriété ou la vie ? Économies morales, actions collectives et politiques du médicament dans la négociation d’accords de libre-échange: Maroc, Thaïlande, États-Unis. PhD thesis, EHESS.

Kuanpoth, J. (2010). Patent rights in pharmaceuticals in developing countries. More challenges for the future. Edward Elgar.CrossRef

Kubitz, G. (2023). Two-stage contests with private information. The American Economic Journal: Microeconomics, 15(1), 239–287.

Ling, C. (2006). Malaysia’s experience in increasing access to antiretroviral drugs: Exercising the ‘government use’ option. Intellectual Property Rights Series 9, Third World Network, 33p.

Ministry of Health Malaysia. (2019). Country Progress Report 2019 - Malaysia. HIV/STI/Hepatitis C Section, MOH Malaysia: The Global AIDS Monitoring.

Ministry of Public Health (MOPH) and the National Health Security Office (NHSO). (2007). Facts and evidences on the 10 burning issues related to the government use of patents on three patented essential drugs in Thailand. Document to support strengthening of social wisdom on the issue of drug patent, Thai White paper, 96p.

Münster, J. (2009). Repeated contests with asymmetric information. Journal of Public Economic Theory, 11, 89–118.CrossRef

Ramani, S. V., & Urias, E. (2015). Access to critical medicines: When are compulsory licenses effective in price negotiations? Social Science and Medicine, 135, 75–83.CrossRefPubMed

Rosen, S. (1986). Prizes and incentives in elimination tournaments. The American Economic Review, 76(4), 701–715.

Rosenberg, S. (2014). Assessing the primacy of health over patent rights: A comparative study of the process that led to the use of compulsory licensing in Thailand and Brazil. Developing World Bioethics, 14(2), 83–89.CrossRefPubMed

Shankar, R., Kinsey, E., Thomas, P., Hooper, J., & Sheliza, T. (2013). Securing IP and access to medicine: Is oncology the next HIV? IMS Consulting Group.

Son, K. B., & Lee, T. J. (2018). Compulsory licensing of pharmaceuticals reconsidered: Current situation and implications for access to medicines. Global Public Health, 13(10), 1430–1440.CrossRefPubMed

Stavropoulou, C., & Valletti, T. (2015). Compulsory licensing and access to drugs. The European Journal of Health Economics, 16(1), 83–94.CrossRefPubMed

Steinbrook, R. (2007). Thailand and compulsory licensing of efavirenz. New England Journal of Medicine, 356(6), 544–547.CrossRefPubMed

Urias, E. (2015). Improving access to HIV/AIDS treatment in Brazil: When are compulsory licenses effective in price negotiations. PhD Dissertation, University of Maastricht.

Urias, E., & Ramani, S. (2020). Access to medicines after TRIPS: Is compulsory licensing an effective mechanism to lower drug prices? A review of the existing evidence. Journal of International Business Policy, 3, 367–384.CrossRefPubMedCentral

World Trade Organization. (1994). Agreement on trade-related aspects of intellectual property rights. Marrakech, 15 April.

World Trade Organization. (2001). Declaration of the TRIPS agreement and public health. In Ministerial Conference, Session Doha, 14 November.

World Health Organization. (2005). Avian influenza: Assessing the pandemic threat. WHO CDS 2005/29, 64p.

Zhang, J., & Wang, R. (2009). The role of information revelation in elimination contests. The Economic Journal, 119, 613–641.CrossRef

Titel: Compulsory license threats in a signaling game of drug procurement
verfasst von: Damien Besancenot
Samira Guennif
Publikationsdatum: 13.03.2024
Verlag: Springer US
Erschienen in: Theory and Decision
Print ISSN: 0040-5833
Elektronische ISSN: 1573-7187
DOI: https://doi.org/10.1007/s11238-024-09978-8

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Premium Partner