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Licensing Contract In A Stackelberg Model

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  • LUIGI FILIPPINI

Abstract

We study optimal linear licensing and its social welfare implications when the innovator (patentee) is an insider that can make capacity/output commitment so as to act as a Stackelberg leader in the output market. We show that (i) the patentee's profit-maximizing licensing contract is a royalty; (ii) the optimal royalty rate is greater than the cost reduction attained by the licensed technology and is increasing in the number of competitors; (iii) optimal licensing maximizes the likelihood of technology transfer, may reduce social welfare and always makes consumers worse off; and (iv) the innovator benefits from capacity commitment, and the more competitive the output market, the greater the gains it makes by licensing. The opposite holds for consumers. Copyright Blackwell Publishing Ltd and The 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): 5 (09)
Pages: 582-598

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Handle: RePEc:bla:manchs:v:73:y:2005:i:5:p:582-598

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Citations

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Cited by:
  1. San Martín, Marta & Saracho, Ana I., 2010. "Royalty licensing," Economics Letters, Elsevier, vol. 107(2), pages 284-287, May.
    • San Martín Lizarralde, Marta & Saracho de la Torre, Ana Isabel, 2009. "Royalty Licensing," IKERLANAK 2009-40, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
  2. repec:ebl:ecbull:v:12:y:2007:i:3:p:1-6 is not listed on IDEAS
  3. Giorgos Stamatopoulos, 2008. "On the possibility of licensing in a market with logit demand functions," Economics Bulletin, AccessEcon, vol. 4(17), pages 1-11.
  4. Stamatopoulos, Giorgos & Tauman, Yair, 2008. "Licensing of a quality-improving innovation," Mathematical Social Sciences, Elsevier, vol. 56(3), pages 410-438, November.
  5. Debapriya Sen & Yair Tauman, 2002. "General licensing schemes for a cost-reducing innovation," Department of Economics Working Papers 02-03, Stony Brook University, Department of Economics.
  6. Toshihiro Matsumura & Noriaki Matsushima, 2010. "Patent licensing, bargaining, and product positioning," ISER Discussion Paper 0775, Institute of Social and Economic Research, Osaka University.
  7. repec:ebl:ecbull:v:4:y:2008:i:17:p:1-11 is not listed on IDEAS
  8. Guangliang Ye, 2012. "Patent Licensing in a Mixed Oligopoly with a Foreign Firm," Economics Bulletin, AccessEcon, vol. 32(2), pages 1191-1197.
  9. Yair Tauman & Debrapiya Sen, 2012. "Patents and Licenses," Department of Economics Working Papers 12-05, Stony Brook University, Department of Economics.
  10. Wang, Kuang-Cheng Andy & Liang, Wen-Jung & Chou, Pin-Shu, 2013. "Patent licensing under cost asymmetry among firms," Economic Modelling, Elsevier, vol. 31(C), pages 297-307.
  11. BHATTACHARYA, Sudipto & D’ASPREMONT, Claude & GURIEV, Sergei & SEN, Debapriya, 2012. "Cooperation in R&D: patenting, licensing and contracting," CORE Discussion Papers 2012055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  12. Li, Changying & Geng, Xiaoyan, 2008. "Licensing to a durable-good monopoly," Economic Modelling, Elsevier, vol. 25(5), pages 876-884, September.
  13. Changying Li & Junmei Wang, 2010. "Licensing a Vertical Product Innovation," The Economic Record, The Economic Society of Australia, vol. 86(275), pages 517-527, December.
  14. Arijit Mukherjee & Yingyi Tsai, 2013. "Technology licensing under optimal tax policy," Journal of Economics, Springer, vol. 108(3), pages 231-247, April.
  15. Arijit Mukherjee, 2007. "Optimal licensing contract in an open economy," Economics Bulletin, AccessEcon, vol. 12(3), pages 1-6.
  16. Stefano Colombo & Luigi Filippini, 2012. "Patent licensing with Bertrand competitors," DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi itemq1262, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  17. Toshihiro Matsumura & Noriaki Matsushima & Giorgos Stamatopoulos, 2010. "Location equilibrium with asymmetric firms: the role of licensing," Journal of Economics, Springer, vol. 99(3), pages 267-276, April.
  18. Luigi Filippini, 2006. "Cournot Competition in a Multiproduct Duopoly: Specialization through Licensing," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 5(3), pages 201-210, December.
  19. Saracho, Ana I., 2011. "Licensing information goods," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 187-199, March.

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