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Tariff-induced licensing contracts, consumers' surplus and welfare revisited

Author

Listed:
  • Seung-Leul Kim

    (Kangwon National University)

  • Sang-Ho Lee

    (Chonnam National University)

Abstract

In a trade model with technology transfer, Kabiraj and Kabiraj (2017) showed that a tariff on foreign products could induce fee licensing with zero royalty, resulting in the maximization of both consumers' surplus and domestic welfare. In this paper, we reexamine their model with an unconstrained two-part tariff licensing contract and show that if the foreign firm subsidizes the domestic firm's production via negative royalty, a higher tariff can induce a two-part tariff licensing contract, which leads to an increase in consumers' surplus and overall welfare.

Suggested Citation

  • Seung-Leul Kim & Sang-Ho Lee, 2023. "Tariff-induced licensing contracts, consumers' surplus and welfare revisited," Economics Bulletin, AccessEcon, vol. 43(2), pages 784-792.
    • Handle: RePEc:ebl:ecbull:eb-22-00779
    as

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    References listed on IDEAS

    as
    1. Kabiraj, Tarun & Marjit, Sugata, 2003. "Protecting consumers through protection: The role of tariff-induced technology transfer," European Economic Review, Elsevier, vol. 47(1), pages 113-124, February.
    2. 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.
    3. Alipranti, Maria & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2014. "Price vs. quantity competition in a vertically related market," Economics Letters, Elsevier, vol. 124(1), pages 122-126.
    4. Kabiraj, Abhishek & Kabiraj, Tarun, 2017. "Tariff induced licensing contracts, consumers’ surplus and welfare," Economic Modelling, Elsevier, vol. 60(C), pages 439-447.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • F1 - International Economics - - Trade
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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