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Market power in the global economy: the exhaustion and protection of intellectual property

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  • Kamal Saggi

    ()
    (Department of Economics, Vanderbilt University)

Abstract

We develop a North-South model in which a firm that enjoys monopoly status in the North (by virtue of a patent or a trademark) has the incentive to price discriminate internationally because Northern consumers value its product more than Southern ones. While North's policy regarding the territorial exhaustion of intellectual property rights (IPR) determines whether the firm can exercise market power across regions, Southern policy regarding the protection of IPR determines the firm's monopoly power within the South. In equilibrium, each region's policy takes into account the firm's pricing strategy, its incentive to export, and the other region's policy stance. Major results are: (i) the North is more likely to choose international exhaustion if the South protects IPR whereas the South is more willing to offer such protection if the North implements national exhaustion; (ii) the firm values IPR protection less than the freedom to price discriminate internationally if and only if its quality advantage over Southern imitators exceeds a certain threshold; and (iii) requiring the South to protect IPR increases global welfare iff such protection is necessary for inducing the firm to export to the South.

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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 12-00005.

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Date of creation: 06 Feb 2012
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Handle: RePEc:van:wpaper:vuecon-12-00005

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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Keywords: Exhaustion of IPRs; Imitation; Market power; TRIPS; Welfare;

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  1. Tommaso Valletti & Stefan Szymanski, 2006. "Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis," CEIS Research Paper 75, Tor Vergata University, CEIS.
  2. Olena Ivus, 2011. "Trade-related intellectual property rights: industry variation and technology diffusion," Canadian Journal of Economics, Canadian Economics Association, vol. 44(1), pages 201-226, February.
  3. Tommaso M. Valletti & Stefan Szymanski, 2006. "PARALLEL TRADE, INTERNATIONAL EXHAUSTION AND INTELLECTUAL PROPERTY RIGHTS: A WELFARE ANALYSIS -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 54(4), pages 499-526, December.
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  7. Smith, Pamela J., 1999. "Are weak patent rights a barrier to U.S. exports?," Journal of International Economics, Elsevier, vol. 48(1), pages 151-177, June.
  8. Malueg, D.A. & Schwartz, M., 1993. "Parallel Imports, Demand Dispersion and International Price Discrimination," Papers 93-6, U.S. Department of Justice - Antitrust Division.
  9. Santanu Roy & Kamal Saggi, 2012. "Strategic competition and optimal parallel import policy," Canadian Journal of Economics, Canadian Economics Association, vol. 45(4), pages 1369-1396, November.
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  11. Varian, Hal R, 1985. "Price Discrimination and Social Welfare," American Economic Review, American Economic Association, vol. 75(4), pages 870-75, September.
  12. Nunnenkamp, Peter & Spatz, Julius, 2004. "Intellectual property rights and foreign direct investment : a disaggregated analysis," Open Access Publications from Kiel Institute for the World Economy 3395, Kiel Institute for the World Economy (IfW).
  13. Branstetter, Lee & Fisman, Ray & Foley, C. Fritz & Saggi, Kamal, 2011. "Does intellectual property rights reform spur industrial development?," Journal of International Economics, Elsevier, vol. 83(1), pages 27-36, January.
  14. Keith E. Maskus, 2000. "Parallel Imports," The World Economy, Wiley Blackwell, vol. 23(9), pages 1269-1284, 09.
  15. Roy, Santanu & Saggi, Kamal, 2011. "Equilibrium parallel import policies and international market structure," Policy Research Working Paper Series 5802, The World Bank.
  16. Maskus, Keith E. & Penubarti, Mohan, 1995. "How trade-related are intellectual property rights?," Journal of International Economics, Elsevier, vol. 39(3-4), pages 227-248, November.
  17. Richardson, Martin, 2002. "An elementary proposition concerning parallel imports," Journal of International Economics, Elsevier, vol. 56(1), pages 233-245, January.
  18. Pinelopi Koujianou Goldberg, 2010. "Alfred Marshall Lecture Intellectual Property Rights Protection in Developing Countries: The Case of Pharmaceuticals," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 326-353, 04-05.
  19. Lee, Jeong-Yeon & Mansfield, Edwin, 1996. "Intellectual Property Protection and U.S. Foreign Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 181-86, May.
  20. Valletti, Tommaso M., 2006. "Differential pricing, parallel trade, and the incentive to invest," Journal of International Economics, Elsevier, vol. 70(1), pages 314-324, September.
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Cited by:
  1. Ray Chaudhuri, A., 2014. "Acquisitions by Multinationals and Trade Liberalization," Discussion Paper 2014-006, Tilburg University, Center for Economic Research.

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