The regional exhaustion of intellectual property

This paper analyzes the causes and consequences of regional exhaustion of intellectual property, a policy regime under which a set of countries permit parallel imports from one another but not from the rest of the world. A three-country model is developed in which two high-income countries jointly choose their common exhaustion policy among national (NE), international (IE), or regional exhaustion (RE). The key result is that the two high-income countries choose to implement RE when they are relatively similar to each other and sufficiently high-income relative to the third country. We also consider a scenario where the policy choice set is restricted to non-discriminatory exhaustion regimes (i.e. NE or IE). Comparing the policy outcome of this constrained scenario with that of the core model, we show that the option to choose RE makes all countries better off.