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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. Copyright Blackwell Publishing Ltd and The Victoria University of Manchester, 2005..

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
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    Citations

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    Cited by:

    1. Fridtjof Anderson, 2014. "Licensing to a More Efficient Rival," Manchester School, University of Manchester, vol. 82(6), pages 653-676, December.
    2. Hattori, Masahiko & Tanaka, Yasuhito, 2017. "License and entry strategies for an outside innovator in duopoly with combination of royalty and fixed fee under vertical differentiation," MPRA Paper 78856, University Library of Munich, Germany.
    3. Hattori, Masahiko & Tanaka, Yasuhito, 2017. "Negative royalty in duopoly and definition of license fee: general demand and cost functions," MPRA Paper 79000, University Library of Munich, Germany.
    4. Yair Tauman & Debrapiya Sen, 2012. "Patents and Licenses," Department of Economics Working Papers 12-05, Stony Brook University, Department of Economics.
    5. Masahiko Hattori & Yasuhito Tanaka, 2016. "Subsidizing New Technology Adoption in a Stackelberg Duopoly: Cases of Substitutes and Complements," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 2(2), pages 197-215, July.
    6. Ramon Faulí-Oller & Xulia González & Joel Sandonís, 2013. "Optimal Two-Part Tariff Licensing Contracts With Differentiated Goods And Endogenous R&D," Manchester School, University of Manchester, vol. 81(5), pages 803-827, September.
    7. Kim, Seung-Leul & Lee, Sang-Ho, 2016. "The licensing of eco-technology under emission taxation: Fixed fee vs. auction," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 343-357.
    8. Jeon, Doh-Shin & Lefouili, Yassine, 2015. "Cross-Licensing and Competition," IDEI Working Papers 850, Institut d'Économie Industrielle (IDEI), Toulouse.
    9. Joseph Farrell & Carl Shapiro, 2008. "How Strong Are Weak Patents?," American Economic Review, American Economic Association, vol. 98(4), pages 1347-1369, September.
    10. Wang, Kuang-Cheng Andy & Wang, Yi-Jie & Liang, Wen-Jung & Tsai, Ming-Che & Mai, Chao-Cheng, 2016. "Patent licensing under financial structure with limited liability," International Review of Economics & Finance, Elsevier, vol. 46(C), pages 121-135.
    11. San Martín Lizarralde, Marta & Saracho de la Torre, Ana Isabel, 2012. "Two-part tariff licensing mechanisms," IKERLANAK Ikerlanak;2012-59, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    12. Marta San Martín & Ana I. Saracho, 2015. "Optimal Two-part Tariff Licensing Mechanisms," Manchester School, University of Manchester, vol. 83(3), pages 288-306, June.
    13. Hattori, Masahiko & Tanaka, Yasuhito, 2017. "License and entry strategies for an outside innovator under duopoly with combination of royalty and fixed fee," MPRA Paper 78854, University Library of Munich, Germany.
    14. Sen, Debapriya & Tauman, Yair, 2007. "General licensing schemes for a cost-reducing innovation," Games and Economic Behavior, Elsevier, vol. 59(1), pages 163-186, April.
    15. 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.
    16. Stamatopoulos, Giorgos & Tauman, Yair, 2008. "Licensing of a quality-improving innovation," Mathematical Social Sciences, Elsevier, vol. 56(3), pages 410-438, November.
    17. Stamatopoulos, Giorgos & Tauman, Tami, 2009. "On the superiority of fixed fee over auction in asymmetric markets," Games and Economic Behavior, Elsevier, vol. 67(1), pages 331-333, September.
    18. Neelanjan Sen, 2015. "Technology Transfer in Oligopoly in Presence of Fixed-Cost in Production," Journal of Industry, Competition and Trade, Springer, vol. 15(4), pages 383-409, December.
    19. Li, Changying & Geng, Xiaoyan, 2008. "Licensing to a durable-good monopoly," Economic Modelling, Elsevier, vol. 25(5), pages 876-884, September.
    20. Li, Changying & Ji, Xiaoming, 2010. "Innovation, licensing, and price vs. quantity competition," Economic Modelling, Elsevier, vol. 27(3), pages 746-754, May.
    21. Debapriya Sen & Giorgos Stamatopoulos, 2009. "Technology Transfer Under Returns To Scale," Manchester School, University of Manchester, vol. 77(3), pages 337-365, June.
    22. Hattori, Masahiko & Tanaka, Yasuhito, 2017. "Robustness of subsidy in licensing under vertical differentiation: General distribution and cost functions," MPRA Paper 78857, University Library of Munich, Germany.
    23. Li, Changying & Song, Juan, 2009. "Technology licensing in a vertically differentiated duopoly," Japan and the World Economy, Elsevier, vol. 21(2), pages 183-190, March.

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