| The essay examines the role of technological spillovers when Northern and Southern firms compete in quantities on the common world market and when only the Northern firm is supposed to conduct innovative activity. The intensity of spillovers is interpreted as an indicator of the strength of the intellectual property rights (IPR) protection. In this light, the paper reconsiders the questions raised in the recent economic analysis of IPR protection in North-South relations: when and whether the Southern countries benefit, in welfare terms, from protecting IPR; how the North fares in the story; how big the conflict between the North and the South is; what the optimal level of IPR protection at the level of the world is. The paper shows that the equilibrium market structure depends on the level of intellectual property rights protection; that is, the nature of the North-South market interaction hinges crucially not only on efficiency of research and development (R&D) but also on the level of spillovers (e.g., the degree of patent protection). The market structures which may appear in the equilibrium (given that there are only two firms), are duopoly, constrained monopoly and (unfettered) monopoly. The welfare implications of IPR protection for both the North and the South also hinge on the ex post (endogenous) market structure. |
