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Cross-border technology licensing with R&D Opportunity and Government Intervention

Author

Listed:
  • Ishikawa, Jota
  • Okubo, Toshihiro

Abstract

Technology holders may have strategic incentive to offer licensing contracts that deter (potential) rivals from conducting their own R&D. This study develops a simple model of technology licensing from a foreign firm to a home firm, in which R&D serves as an alternative means for the home firm to enter the market. We first derive the optimal licensing fees with differentiated goods and two-part tariffs. Depending on parameter values, three types of licensing contracts can emerge: (i) by means of a fixed fee alone, (ii) by means of a royalty alone, and (iii) by means of a combination of a fixed fee and a royalty. We then specifically investigate intervention by the home government: withholding taxes on royalties and R&D subsidies. A withholding tax may improve home welfare without imposing any burden on the home firm and consumers. Committing itself to an R&D subsidy, the home government can reduce licensing fees without any cost.

Suggested Citation

  • Ishikawa, Jota & Okubo, Toshihiro, 2025. "Cross-border technology licensing with R&D Opportunity and Government Intervention," Journal of the Japanese and International Economies, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:jjieco:v:76:y:2025:i:c:s0889158325000139
    DOI: 10.1016/j.jjie.2025.101364
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    More about this item

    Keywords

    International oligopoly; Licensing; Withholding tax; R&D subsidy; Rent-shifting;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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