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Welfare improving licensing with endogenous choice of prices versus quantities

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  • Din, Hong-Ren
  • Sun, Chia-Hung

Abstract

This paper investigates the endogenous choice of prices versus quantities by taking into account patent licensing where the patent holder, which is itself a producer within the industry, licenses its cost-reducing innovation to the rival firm through a two-part tariff contract. For substitute products we find that both Cournot and mixed price-quantity competition may constitute the equilibrium outcomes, depending on the innovation size. Contrary to the results in Fauli-Oller and Sandonis (2002), we show that the optimal licensing contract definitely leads to an increase in social welfare. Our result reinforces the positive welfare effect of patent licensing.

Suggested Citation

  • Din, Hong-Ren & Sun, Chia-Hung, 2020. "Welfare improving licensing with endogenous choice of prices versus quantities," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:ecofin:v:51:y:2020:i:c:s1062940818304789
    DOI: 10.1016/j.najef.2018.10.007
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    References listed on IDEAS

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    1. Fauli-Oller, Ramon & Sandonis, Joel, 2002. "Welfare reducing licensing," Games and Economic Behavior, Elsevier, vol. 41(2), pages 192-205, November.
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    6. Stefano Colombo & Luigi Filippini, 2015. "Patent Licensing with Bertrand Competitors," Manchester School, University of Manchester, vol. 83(1), pages 1-16, January.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Patent licensing; Two-part tariff; Cournot competition; Bertrand competition; Endogenous strategic variables;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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