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This article theoretically examines the potential effect of product patent on the availability of an essential drug in developing countries like India. Previous studies have indicated the possibility of a product patent making a drug unavailable in a developing nation. This has been shown under the uniform pricing policy adopted by the multinational company (MNC) that produces the drug. Allowing for price discrimination and comparing it with the above situation, we have argued that the problem of non-availability of a patented drug is, indeed, much less serious. However, successful price discrimination is not possible when markets are not perfectly segmented and “parallel trade” (a form of arbitrage) by the distributors exists. Our model incorporates such a possibility and establishes that even in the presence of parallel trade, the MNC can earn higher profits by supplying the drug to both the developed and the developing nations than by confining itself to the markets of developed countries.
