The consumer welfare implications of governmental policies and firm strategy in markets for medicines

Chirantan Chatterjee, Kensuke Kubo, Viswanath Pingali

Research output: Contribution to journalArticlepeer-review

23 Citations (Scopus)


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.

Original languageEnglish
Pages (from-to)255-273
Number of pages19
JournalJournal of Health Economics
Publication statusPublished - 2015 Dec 1
Externally publishedYes


  • Compulsory licensing
  • Differential pricing
  • Indian pharmaceutical market
  • Intellectual property
  • Pharmaceutical demand estimation

ASJC Scopus subject areas

  • Health Policy
  • Public Health, Environmental and Occupational Health


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