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Subsidy In Licensing: Optimality And Welfare Implications

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  • CHUN-HSIUNG LIAO
  • DEBAPRIYA SEN

Abstract

This paper shows that subsidy can naturally emerge as part of the equilibrium strategy of an innovator of a cost-reducing innovation in a Cournot oligopoly when the innovator is endowed with combinations of upfront fee and royalty. It is further shown that there are robust regions where the social welfare is higher in subsidy-based licensing compared to the regime where licensing involving subsidy is not allowed. The analysis is carried out for both outsider and incumbent innovators. Copyright Blackwell Publishing Ltd and The Victoria University of Manchester, 2005..

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Bibliographic Info

Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 73 (2005)
Issue (Month): 3 (06)
Pages: 281-299

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Handle: RePEc:bla:manchs:v:73:y:2005:i:3:p:281-299

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Cited by:
  1. Stamatopoulos, Giorgos & Tauman, Yair, 2008. "Licensing of a quality-improving innovation," Mathematical Social Sciences, Elsevier, Elsevier, vol. 56(3), pages 410-438, November.
  2. Sen, Debapriya & Tauman, Yair, 2007. "General licensing schemes for a cost-reducing innovation," Games and Economic Behavior, Elsevier, Elsevier, vol. 59(1), pages 163-186, April.
  3. Li, Changying & Geng, Xiaoyan, 2008. "Licensing to a durable-good monopoly," Economic Modelling, Elsevier, Elsevier, vol. 25(5), pages 876-884, September.
  4. Wang, Kuang-Cheng Andy & Liang, Wen-Jung & Chou, Pin-Shu, 2013. "Patent licensing under cost asymmetry among firms," Economic Modelling, Elsevier, Elsevier, vol. 31(C), pages 297-307.
  5. Li, Changying & Ji, Xiaoming, 2010. "Innovation, licensing, and price vs. quantity competition," Economic Modelling, Elsevier, Elsevier, vol. 27(3), pages 746-754, May.
  6. San Martín Lizarralde, Marta & Saracho de la Torre, Ana Isabel, 2012. "Two-part tariff licensing mechanisms," IKERLANAK, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I Ikerlanak;2012-59, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
  7. Li, Changying & Song, Juan, 2009. "Technology licensing in a vertically differentiated duopoly," Japan and the World Economy, Elsevier, Elsevier, vol. 21(2), pages 183-190, March.
  8. Yair Tauman & Debrapiya Sen, 2012. "Patents and Licenses," Department of Economics Working Papers, Stony Brook University, Department of Economics 12-05, Stony Brook University, Department of Economics.
  9. Stamatopoulos, Giorgos & Tauman, Tami, 2009. "On the superiority of fixed fee over auction in asymmetric markets," Games and Economic Behavior, Elsevier, Elsevier, vol. 67(1), pages 331-333, September.
  10. Joseph Farrell & Carl Shapiro, 2008. "How Strong Are Weak Patents?," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1347-69, September.
  11. Ramón Faulí-Oller & Joel Sandonís, 2008. "Optimal Two-Part Tariff Licensing Contracts with Differentiated Goods and Endogenous R&D," Working Papers. Serie AD, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) 2008-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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