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

This paper analyzes economic linkages between the exhaustion and protection of intellectual property. We consider a North-South model, where a \u85rm that enjoys monopoly status in the North by virtue of an intellectual property right (IPR) such as a patent or a trademark has the incentive to price discriminate internationally because Northern consumers value its product more than Southern ones. The key intuition underlying the model is that while Northern policy regarding the territorial exhaustion of IPRs determines whether the \u85rm can price discriminate internation-ally and therefore exercise market power across regions, Southern policy regarding the protection of IPRs determines the \u85rms monopoly power within the South. In equilibrium, each regions policy takes into account the \u85rms pricing behavior, its incentive to export, and the other regions policy stance. Major results are: (a) the North is more likely to prefer national exhaustion when the South does not protect IPRs whereas the South is more willing to protect intellectual property if the North chooses national exhaustion; (b) the \u85rm values protection of intellectual propert