R&D Productivity and Intellectual Property Rights Protection Regimes

We study …rms’preferences towards intellectual property rights (IPR) regimes in a North-South context, using a simple duopoly model where a ’North’ and a ’South’ …rm compete in a third market. Unlike other contributions in this …eld, we explicitly introduce the South’s capability to undertake cost-reducing R&D, but maintain the South’s inferiority in utilizing and managing its R&D. In contrast to traditional results, we show that the North may encourage lax IPR protection provided that its South rival’s R&D productivity is su¢ ciently high, while the South may …nd it in its best interest to strictly enforce IPR protection if its R&D productivity is low. In this sense, our results do not support the idea of universal or uniform IPR protection regime. In addition, we …nd that if …rms are allowed to agree on any level of information exchange when IPR protection is strictly enforced, such an exchange can always be established as long as each …rm is ensured that what it gets to utilize in return is greater than a half of what it gives to its rival.