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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.

Suggested Citation

  • Chun‐Hsiung Liao & Debapriya Sen, 2005. "Subsidy In Licensing: Optimality And Welfare Implications," Manchester School, University of Manchester, vol. 73(3), pages 281-299, June.
    • Handle: RePEc:bla:manchs:v:73:y:2005:i:3:p:281-299
    DOI: 10.1111/j.1467-9957.2005.00447.x
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    References listed on IDEAS

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