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Market Power in the Global Economy: The Exhaustion and Protection of Intellectual Property

Authors


  •  Corresponding author: Kamal Saggi, Department of Economics, Vanderbilt University, VU Station PMB #351828, 2301 Vanderbilt Place, Nashville, TN 37235-1828, USA. Email: k.saggi@vanderbilt.edu.

  • I thank two anonymous referees and editor Rachel Griffith for detailed and insightful comments on an earlier version of this article. I also thank Rick Bond, Tannous Hanna Kass Hanna, Olena Ivus, Yan Ma, Jayashree Watal and seminar audiences at the 7th Annual Conference on Economic Growth and Development at ISI (New Delhi), the Geneva Trade and Development Workshop held at the Graduate Institute and at Queen's University School of Business (Kingston) for helpful comments.

Abstract

We develop a North–South model in which a Northern monopolist can fully exercise its market power globally only if the North practises national exhaustion of intellectual property rights (IPR) and the South prohibits imitation. The firm's export incentive turns out to be a major determinant of equilibrium policy choices and their welfare effects. The North has a stronger preference for international exhaustion if the South forbids imitation, something the South is actually more willing to do under national exhaustion. Shutting down Southern imitation increases global welfare if and only if it is necessary for inducing the firm to export.

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