IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_11313.html
   My bibliography  Save this paper

Patent Exhaustion and Licensing in the Supply Chain

Author

Listed:
  • Jay Pil Choi
  • Heiko Gerlach

Abstract

This paper analyzes private and social incentives to levy an ad valorem licensing fee in a supply chain governed by the legal principle of patent exhaustion. With perfect competition at the upstream and downstream stage, the choice of the licensing segment is irrelevant for the patent holder and consumers. When exactly one segment of the value chain is monopolistic while the other one is competitive, the patent holder prefers licensing at the monopolistic stage leading to an alignment of private and social incentives. With imperfect competition at both stages, excessive downstream licensing can arise. We demonstrate that charging licensing fees at both stages of the supply chain (“double-dipping”) can be profitable for the patent holder and beneficial for consumers. We discuss the implications of this result for the application of the patent exhaustion principle.

Suggested Citation

  • Jay Pil Choi & Heiko Gerlach, 2024. "Patent Exhaustion and Licensing in the Supply Chain," CESifo Working Paper Series 11313, CESifo.
    • Handle: RePEc:ces:ceswps:_11313
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp11313.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Delipalla, Sofia & Keen, Michael, 1992. "The comparison between ad valorem and specific taxation under imperfect competition," Journal of Public Economics, Elsevier, vol. 49(3), pages 351-367, December.
    2. D. B. Suits & R. A. Musgrave, 1953. "Ad Valorem and Unit Taxes Compared," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 67(4), pages 598-604.
    Full references (including those not matched with items on IDEAS)

    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. Carbonnier Cl´ement, 2014. "The incidence of non-linear consumption taxes," Научный результат. Серия «Экономические исследования», CyberLeninka;Федеральное государственное автономное образовательное учреждение высшего образования «Белгородский государственный национальный исследовательский университет», issue 1, pages 5-18.
    2. Helmuts Azacis & David R Collie, 2018. "Taxation and the sustainability of collusion: ad valorem versus specific taxes," Journal of Economics, Springer, vol. 125(2), pages 173-188, October.
    3. Zhu Wang & Julian Wright, 2017. "Ad valorem platform fees, indirect taxes, and efficient price discrimination," RAND Journal of Economics, RAND Corporation, vol. 48(2), pages 467-484, May.
    4. Lockwood, Ben, 2003. "Imperfect competition, the marginal cost of public funds and public goods supply," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1719-1746, August.
    5. Laszlo Goerke, 2011. "Commodity tax structure under uncertainty in a perfectly competitive market," Journal of Economics, Springer, vol. 103(3), pages 203-219, July.
    6. Blackorby, Charles & Murty, Sushama, 2007. "Unit versus ad valorem taxes: Monopoly in general equilibrium," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 817-822, April.
    7. Auerbach, Alan J. & Hines, James Jr., 2002. "Taxation and economic efficiency," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 21, pages 1347-1421, Elsevier.
    8. Kojun Hamada & Takao Ohkawa & Makoto Okamura, 2022. "Optimal taxation in a free‐entry Cournot oligopoly: The average cost function approach," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(2), pages 1166-1192, May.
    9. Charles Blackorby & Sushama Murty, 2013. "Unit Versus Ad Valorem Taxes: The Private Ownership of Monopoly in General Equilibrium," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 15(4), pages 547-579, August.
    10. Bousquet, Alain & Cremer, Helmuth & Ivaldi, Marc & Wolkowicz, Michel, 1998. "Risk sharing in licensing," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 535-554, September.
    11. Kojun Hamada & Takao Ohkawa & Makoto Okamura, 2024. "The optimal specific or ad valorem tax when the other tax is exogenously imposed in a free‐entry Cournot oligopoly market," Bulletin of Economic Research, Wiley Blackwell, vol. 76(1), pages 251-266, January.
    12. McCalman, Phillip, 2023. "Robust trade policy to offset foreign market power," European Economic Review, Elsevier, vol. 154(C).
    13. Théophile T Azomahou & Racky Baldé & Abdoulaye Diagne & Pape Yona Mané & Ibrahima Sory Kaba, 2019. "Public finances and tobacco taxation with product variety: Theory and application to Senegal and Nigeria," PLOS ONE, Public Library of Science, vol. 14(2), pages 1-21, February.
    14. Marc Bourreau & Bernard Caillaud & Romain De Nijs, 2018. "Taxation of a digital monopoly platform," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(1), pages 40-51, February.
    15. Chin W. Yang & Hui Wen Cheng & Ching Wen Chi & Bwo-Nung Huang, 2016. "A Tax Can Increase Profit of a Monopolist or a Monopoly-like Firm: A Fiction or Distinct Possibility?," Hacienda Pública Española / Review of Public Economics, IEF, vol. 216(1), pages 39-60, March.
    16. Dina Kassab, 2020. "Tax Exemptions of Ethical Products Revisited," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 77(2), pages 423-447, October.
    17. X. Wang & Jingang Zhao, 2009. "On the efficiency of indirect taxes in differentiated oligopolies with asymmetric costs," Journal of Economics, Springer, vol. 96(3), pages 223-239, April.
    18. Jörg Plewka, 2007. "Fiscal Discrimination Between Consumer Groups: Tax Burden Distribution Under Price Discrimination," Ruhr Economic Papers 0019, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    19. Henrik Vetter, 2016. "Tax Reform in Monopolistic Competition with Increasing Preferences for Variety," Public Finance Review, , vol. 44(2), pages 245-262, March.
    20. Hiroshi Aiura & Hikaru Ogawa, 2019. "Indirect taxes in a cross-border shopping model: a monopolistic competition approach," Journal of Economics, Springer, vol. 128(2), pages 147-175, October.

    More about this item

    Keywords

    patent licensing; supply chain; first sale doctrine; patent exhaustion; double-dipping;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:ces:ceswps:_11313. 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: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    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.