Access to critical medicines: When are compulsory licenses effective in price negotiations?

Governments of developing countries can be in a vulnerable position with respect to patent protected drugs supplied by foreign firms, if the technology cannot be licensed or independently developed by local firms. In such instances, one possible solution is to negotiate for a price-drop with the patent holder in lieu of issuing a compulsory license. The present paper develops a game theoretic model of such bargaining and shows that while compulsory licenses do not occur under complete information, they can be issued under incomplete information. The model is tested against real episodes of compulsory licenses to derive policy insight. (C) 2015 Elsevier Ltd. All rights reserved.