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Decreasing Returns, Patent Licensing, and Price-Reducing Taxes

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  • Debapriya Sen
  • Giorgos Stamatopoulos

Abstract

This paper proposes simple tax policies that can alleviate the distortive effectsof royalties. We consider a Cournot duopoly under decreasing returns where oneof the firms has a patented technology that it can license to its rival using combinations of royalties and fixed fees. Under optimal licensing policies for the patentee, stronger diseconomies of scale result in lower market prices. It is possible to construct tax-transfer schemes for the firms that are Pareto-improving as well as deficit-neutral, i.e., these taxes lower market prices and collect sufficient revenue to compensate firms for their losses from taxation without incurring any deficit.

Suggested Citation

  • Debapriya Sen & Giorgos Stamatopoulos, 2019. "Decreasing Returns, Patent Licensing, and Price-Reducing Taxes," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 175(2), pages 291-307.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2019-0022
    DOI: 10.1628/jite-2019-0022
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    References listed on IDEAS

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    1. John Geanakoplos & H M Polemchakis, 2008. "Pareto Improving Taxes," Levine's Working Paper Archive 122247000000002219, David K. Levine.
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    Citations

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    Cited by:

    1. Stefano Colombo & Luigi Filippini & Debapriya Sen, 2023. "Patent Licensing and Capacity in a Cournot Model," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(1), pages 45-62, February.
    2. Colombo, Stefano & Filippini, Luigi & Sen, Debapriya, 2020. "Licensing with capacity constraint," MPRA Paper 102653, University Library of Munich, Germany.
    3. Stefano Colombo & Luigi Filippini, 2016. "Revenue royalties," Journal of Economics, Springer, vol. 118(1), pages 47-76, May.
    4. Ramon Fauli‐Oller & Joel Sandonís, 2022. "Fee versus royalty licensing in a Cournot duopoly with increasing marginal costs," Manchester School, University of Manchester, vol. 90(4), pages 439-452, July.

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    More about this item

    Keywords

    decreasing returns; royalty; quantity tax; deficit neutrality;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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