IDEAS home Printed from https://ideas.repec.org/a/spr/jecrev/v68y2017i1d10.1111_jere.12111.html
   My bibliography  Save this article

Endogenous Market Structure and Technology Licensing

Author

Listed:
  • Chin-Sheng Chen

    (Soochow University)

Abstract

This paper analyses the optimal licensing strategy of a licensor firm that competes with potential licensee firms in an industry with endogenous entry. The optimal licensing strategy of the licensor firm is to have zero royalty and positive fixed fees, which is a result that sharply contrasts with the existing literature whereby licensor firms tend to charge positive royalties to their rival licensees. Under the optimal licensing strategy, the licensor firm and the licensee firms are active in the market, but not the non-licensed firms. This equilibrium market structure is socially desirable if the fixed production cost is not too small.

Suggested Citation

  • Chin-Sheng Chen, 2017. "Endogenous Market Structure and Technology Licensing," The Japanese Economic Review, Springer, vol. 68(1), pages 115-130, March.
    • Handle: RePEc:spr:jecrev:v:68:y:2017:i:1:d:10.1111_jere.12111
    DOI: 10.1111/jere.12111
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1111/jere.12111
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1111/jere.12111?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Sougata Poddar & Uday Bhanu Sinha, 2004. "On Patent Licensing in Spatial Competition," The Economic Record, The Economic Society of Australia, vol. 80(249), pages 208-218, June.
    2. Fridtjof Anderson, 2014. "Licensing to a More Efficient Rival," Manchester School, University of Manchester, vol. 82(6), pages 653-676, December.
    3. 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.
    4. 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.
    5. Yi, Sang-Seung, 1999. "Entry, licensing and research joint ventures," International Journal of Industrial Organization, Elsevier, vol. 17(1), pages 1-24, January.
    6. Lu, Yuanzhu & Poddar, Sougata, 2014. "Patent licensing in spatial models," Economic Modelling, Elsevier, vol. 42(C), pages 250-256.
    7. Andrea Fosfuri & Esther Roca, 2004. "Optimal Licensing Strategy: Royalty or Fixed Fee?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 3(1), pages 13-19, April.
    8. Michael L. Katz & Carl Shapiro, 1985. "On the Licensing of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 504-520, Winter.
    9. Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, March.
    10. Hiroaki Ino & Toshihiro Matsumura, 2012. "How Many Firms Should Be Leaders? Beneficial Concentration Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1323-1340, November.
    11. Anand, Bharat N & Khanna, Tarun, 2000. "The Structure of Licensing Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 48(1), pages 103-135, March.
    12. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July.
    13. Bagchi, Aniruddha & Mukherjee, Arijit, 2014. "Technology licensing in a differentiated oligopoly," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 455-465.
    14. Nisvan Erkal, 2005. "Optimal Licensing Policy in Differentiated Industries," The Economic Record, The Economic Society of Australia, vol. 81(252), pages 51-60, March.
    15. Stefano Colombo & Luigi Filippini, 2015. "Patent Licensing with Bertrand Competitors," Manchester School, University of Manchester, vol. 83(1), pages 1-16, January.
    16. Ana I. Saracho, 2002. "Patent Licensing Under Strategic Delegation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(2), pages 225-251, June.
    17. Arijit Mukherjee & Soma Mukherjee, 2008. "Excess‐Entry Theorem: The Implications Of Licensing," Manchester School, University of Manchester, vol. 76(6), pages 675-689, December.
    18. Morton I. Kamien & Yair Tauman, 1986. "Fees Versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 471-491.
    19. John S. Heywood & Guangliang Ye, 2011. "Patent licensing in a model of spatial price discrimination," Papers in Regional Science, Wiley Blackwell, vol. 90(3), pages 589-602, August.
    20. Gallini, Nancy T, 1984. "Deterrence by Market Sharing: A Strategic Incentive for Licensing," American Economic Review, American Economic Association, vol. 74(5), pages 931-941, December.
    21. Sen, Debapriya, 2005. "Fee versus royalty reconsidered," Games and Economic Behavior, Elsevier, vol. 53(1), pages 141-147, October.
    22. X. Henry Wang & Bill Yang, 2004. "On Technology Transfer to an Asymmetric Cournot Duopoly," Economics Bulletin, AccessEcon, vol. 4(14), pages 1-6.
    23. Katharine E. Rockett, 1990. "Choosing the Competition and Patent Licensing," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 161-171, Spring.
    24. Perry, Martin K, 1984. "Scale Economies, Imperfect Competition, and Public Policy," Journal of Industrial Economics, Wiley Blackwell, vol. 32(3), pages 313-333, March.
    25. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
    26. repec:ebl:ecbull:v:4:y:2004:i:14:p:1-6 is not listed on IDEAS
    27. Chen, Yi-Wen & Yang, Ya-Po & Wang, Leonard F.S. & Wu, Shih-Jye, 2014. "Technology licensing in mixed oligopoly," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 193-204.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ku-Chu Tsao & Jin-Li Hu & Hong Hwang & Yan-Shu Lin, 2023. "More licensed technologies may make it worse: a welfare analysis of licensing vertically two-tier foreign technologies," Journal of Economics, Springer, vol. 139(1), pages 71-88, June.
    2. Suzuki, Keishun, 2020. "Patent Protection, Optimal Licensing, And Innovation With Endogenous Entry," Macroeconomic Dynamics, Cambridge University Press, vol. 24(8), pages 2033-2059, December.
    3. Masahiko Hattori & Yasuhito Tanaka, 2020. "Entry of Innovator and License in Oligopoly," Journal of Industry, Competition and Trade, Springer, vol. 20(4), pages 709-731, December.
    4. Kishimoto, Shin & Suzuki, Keishun, 2021. "Growth and Welfare Effects of Interventions in Patent Licensing Negotiations," MPRA Paper 108009, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chin-Sheng Chen, 2017. "Endogenous Market Structure and Technology Licensing," The Japanese Economic Review, Japanese Economic Association, vol. 68(1), pages 115-130, March.
    2. Sudipto Bhattacharya & Claude d’Aspremont & Sergei Guriev & Debapriya Sen & Yair Tauman, 2014. "Cooperation in R&D: Patenting, Licensing, and Contracting," International Series in Operations Research & Management Science, in: Kalyan Chatterjee & William Samuelson (ed.), Game Theory and Business Applications, edition 2, chapter 0, pages 265-286, Springer.
    3. Sinha, Uday Bhanu, 2016. "Optimal value of a patent in an asymmetric Cournot duopoly market," Economic Modelling, Elsevier, vol. 57(C), pages 93-105.
    4. Debapriya Sen & Giorgos Stamatopoulos, 2009. "Technology Transfer Under Returns To Scale," Manchester School, University of Manchester, vol. 77(3), pages 337-365, June.
    5. Zhao, Dan, 2017. "Choices and impacts of cross-licensing contracts," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 389-405.
    6. Banerjee, Swapnendu & Poddar, Sougata, 2019. "‘To sell or not to sell’: Licensing versus selling by an outside innovator," Economic Modelling, Elsevier, vol. 76(C), pages 293-304.
    7. Yair Tauman & Debrapiya Sen, 2012. "Patents and Licenses," Department of Economics Working Papers 12-05, Stony Brook University, Department of Economics.
    8. Zhang, Huaige & Wang, Xuejun & Qing, Ping & Hong, Xianpei, 2016. "Optimal licensing of uncertain patents in a differentiated Stackelberg duopolistic competition market," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 215-229.
    9. Stefano Colombo & Luigi Filippini, 2015. "Patent Licensing with Bertrand Competitors," Manchester School, University of Manchester, vol. 83(1), pages 1-16, January.
    10. Amir, Rabah & Encaoua, David & Lefouili, Yassine, 2014. "Optimal licensing of uncertain patents in the shadow of litigation," Games and Economic Behavior, Elsevier, vol. 88(C), pages 320-338.
    11. Yan, Qingyou & Yang, Le, 2018. "Optimal licensing in a differentiated Bertrand market under uncertain R&D outcomes and technology spillover," Economic Modelling, Elsevier, vol. 68(C), pages 117-126.
    12. Nisvan Erkal, 2005. "Optimal Licensing Policy in Differentiated Industries," The Economic Record, The Economic Society of Australia, vol. 81(252), pages 51-60, March.
    13. Gelves, Juan Alejandro & Heywood, John S., 2016. "How does a mixed ownership firm license a patent?," Economic Modelling, Elsevier, vol. 59(C), pages 278-284.
    14. Shuai Niu, 2015. "Privatization in the presence of patent licensing," Journal of Economics, Springer, vol. 116(2), pages 151-163, October.
    15. Mukherjee, Arijit, 2010. "Licensing a new product: Fee vs. royalty licensing with unionized labor market," Labour Economics, Elsevier, vol. 17(4), pages 735-742, August.
    16. Bagchi, Aniruddha & Mukherjee, Arijit, 2014. "Technology licensing in a differentiated oligopoly," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 455-465.
    17. Sougata Poddar & Uday Bhanu Sinha, 2010. "Patent Licensing from a High‐Cost Firm to a Low‐Cost Firm," The Economic Record, The Economic Society of Australia, vol. 86(274), pages 384-395, September.
    18. Stefano Colombo & Luigi Filippini, 2016. "Revenue royalties," Journal of Economics, Springer, vol. 118(1), pages 47-76, May.
    19. Stefano Colombo, 2014. "Fee versus royalty licensing in spatial Cournot competition," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(3), pages 859-879, May.
    20. Saracho, Ana I., 2011. "Licensing information goods," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 187-199, March.

    More about this item

    Keywords

    L13; L22; L24;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jecrev:v:68:y:2017:i:1:d:10.1111_jere.12111. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.