Price regulation and public service obligations under international arbitrage

National regulation generates price differentials between countries stimulating arbitrage by international distributors. Harmed manufacturers counteract using vertical price-squeeze or non-price discrimination.We show that: (i) either under regulatory commitment or discretion, there are non-linear relationships between technology/market conditions and the first-mover’s pricing strategy; (ii) public service obligations on distributors allow regulators to manipulate parallel exports so as to improve national welfare; (iii) to prevent sabotage, regulation should provide manufacturers with adequate countervailing incentives; (iv) coordinating national agencies alleviates negative regulatory and market externalities. Therefore, static and dynamic efficiency concerns may arise within a regional exhaustion regime of intellectual property rights.