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Technology licensing, R&D and welfare

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  • Chang, Ray-Yun
  • Hwang, Hong
  • Peng, Cheng-Hau

Abstract

This paper sets up a three-stage (R&D, technology licensing, and output) oligopoly game in which only one of the firms undertakes a cost-reducing R&D and may license the developed technology to the others by means of a two-part tariff (i.e., a per-unit royalty and an upfront fee) contract. It is found with surprise that if the licensor firm’s R&D efficiency is high, the availability of licensing subdues the firm’s R&D incentive, leading to a lower social welfare level. This result implies that a government has to be cautious when encouraging technology licensing among firms.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 118 (2013)
Issue (Month): 2 ()
Pages: 396-399

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Handle: RePEc:eee:ecolet:v:118:y:2013:i:2:p:396-399

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Technology licensing; R&D investment; Social welfare;

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References

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  1. Nadiri, M.I., 1993. "Innovations and Technological Spillovers," Working Papers, C.V. Starr Center for Applied Economics, New York University 93-31, C.V. Starr Center for Applied Economics, New York University.
  2. Salant, Stephen W, 1984. "Preemptive Patenting and the Persistence of Monopoly: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 74(1), pages 247-50, March.
  3. Arijit Mukherjee, 2002. "Innovation, Licensing and Welfare," Keele Economics Research Papers, Centre for Economic Research, Keele University KERP 2002/03, Centre for Economic Research, Keele University.
  4. Arijit Mukherjee & Soma Mukherjee, 2002. "Licensing and the Incentive for Innovation," Keele Economics Research Papers, Centre for Economic Research, Keele University KERP 2002/17, Centre for Economic Research, Keele University.
  5. Ping Lin, 2007. "Process R&D and Product Line Deletion by a Multiproduct Monopolist," Journal of Economics, Springer, Springer, vol. 91(3), pages 245-262, July.
  6. Arijit Mukherjee & Soma Mukherjee, 2008. "Excess-Entry Theorem: The Implications Of Licensing," Manchester School, University of Manchester, vol. 76(6), pages 675-689, December.
  7. M. Ishaq Nadiri, 1993. "Innovations and Technological Spillovers," NBER Working Papers 4423, National Bureau of Economic Research, Inc.
  8. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, Elsevier, vol. 60(1), pages 55-62, July.
  9. Fauli-Oller, Ramon & Sandonis, Joel, 2002. "Welfare reducing licensing," Games and Economic Behavior, Elsevier, Elsevier, vol. 41(2), pages 192-205, November.
  10. Gallini, Nancy T, 1984. "Deterrence by Market Sharing: A Strategic Incentive for Licensing," American Economic Review, American Economic Association, American Economic Association, vol. 74(5), pages 931-41, December.
  11. Kamien, Morton I & Tauman, Yair, 2002. "Patent Licensing: The Inside Story," Manchester School, University of Manchester, vol. 70(1), pages 7-15, January.
  12. Uday Bhanu Sinha, 2010. "Strategic licensing, exports, FDI, and host country welfare," Oxford Economic Papers, Oxford University Press, vol. 62(1), pages 114-131, January.
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Cited by:
  1. Sen, Neelanjan, 2014. "Technology Transfer and its effect on Innovation," MPRA Paper 55542, University Library of Munich, Germany.

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