LINKAGES BETWEEN PATENT PROTECTION AND STRATEGIC R&D POLICY: CASE OF THE EXOGENOUS REGIME OF IPR PROTECTION

Abstract

This paper explores strategic R&D policy when countries’ regimes on protection of intellectual property rights (IPR) are exogenously given under the multilaterally agreed disciplines. Under the weak enforcement regime, domestic and foreign R&D activities are strategic complements rather than strategic substitutes and hence R&D reaction curves are upward sloping. Government wishes to subsidize its domestic firm’s R&D in the presence of sufficiently weak IPR protection, because it is able to encourage R&D by the foreign rival firm, and greater R&D investment of foreign rivals increases the profits of the domestic firm.