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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.

Suggested Citation

  • Kamal Saggi, 2012. "Market power in the global economy: the exhaustion and protection of intellectual property," Vanderbilt University Department of Economics Working Papers 12-00005, Vanderbilt University Department of Economics.
  • Handle: RePEc:van:wpaper:vuecon-12-00005
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    References listed on IDEAS

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    1. 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 181-186, May.
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    4. Szymanski, Stefan & Valletti, Tommaso, 2005. "Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis," CEPR Discussion Papers 5022, C.E.P.R. Discussion Papers.
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    9. Panle Gia & Pinelopi K. Goldberg & Shubham Chaudhuri, 2006. "Estimating the Effects of Global Patent Protection in Pharmaceuticals: A Case Study of Quinolones in India," American Economic Review, American Economic Association, vol. 96(5), pages 1477-1514, December.
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    Citations

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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.
    2. Bennato, Anna Rita & Valletti, Tommaso, 2014. "Pharmaceutical innovation and parallel trade," International Journal of Industrial Organization, Elsevier, vol. 33(C), pages 83-92.
    3. repec:eee:inecon:v:109:y:2017:i:c:p:68-84 is not listed on IDEAS
    4. Olena Ivus & Edwin L.-C. Lai, 2017. "Patent Exhaustion Regime and International Production Sharing: Winner and Losers?," CESifo Working Paper Series 6644, CESifo Group Munich.
    5. repec:eee:inecon:v:109:y:2017:i:c:p:235-245 is not listed on IDEAS
    6. Kamal Saggi, 2016. "Trade, Intellectual Property Rights, and the World Trade Organization," Vanderbilt University Department of Economics Working Papers 16-00014, Vanderbilt University Department of Economics.
    7. Olena Ivus & Edwin L.-C. Lai & Ted Sichelman, 2017. "An Economic Model of Patent Exhaustion," CESifo Working Paper Series 6638, CESifo Group Munich.
    8. Geng, Difei & Saggi, Kamal, 2017. "International effects of national regulations: External reference pricing and price controls," Journal of International Economics, Elsevier, vol. 109(C), pages 68-84.
    9. Jenny X. Lin & William Lincoln, 2017. "Pirate’s Treasure," Working Papers 17-51, Center for Economic Studies, U.S. Census Bureau.

    More about this item

    Keywords

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

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics

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