Universally strong IPR protection and global welfare: A market-penetration perspective

In a segmented trading environment with possible foreign penetration, we study market competition involving investment with cross-border differences in intellectual property rights (IPR) policy. While acknowledging that strong IPR promotes investment and facilitates the coverage in foreign markets where demand is much greater than that in the home market, we investigate a negative trade-off between the reduction in domestic welfare owing to business-stealing effect (BSE) and the increase in national welfare emerging from market-penetration effect (MPE), given host IPR policies. We show a partially (non-universally) strong IPR regime can nonethe-less increase global welfare even when the MPE does not universally outweigh the BSE. This finding contrasts the arguments that strong IPR protection can improve welfare by reducing inequality in the long run and by increasing the effectiveness of knowledge spillovers.