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Vertical Licensing, Input Pricing, and Entry

Author

Listed:
  • Elpiniki Bakaouka
  • Chrysovalantou Milliou

Abstract

We explore the incentives of a vertically integrated incumbent firm to license the production technology of its core input to an external firm, transforming the licensee into its input supplier. We find that the incumbent opts for licensing even when licensing also transforms the licensee into one of its direct competitors in the final products market. In fact, the licensee's entry into the final products market, although increases the competition and the cost that the licensor faces, it reinforces, instead of weakens, the licensing incentives. Furthermore, the licensee's entry augments the positive welfare implications of vertical licensing.

Suggested Citation

  • Elpiniki Bakaouka & Chrysovalantou Milliou, 2017. "Vertical Licensing, Input Pricing, and Entry," CESifo Working Paper Series 6316, CESifo.
    • Handle: RePEc:ces:ceswps:_6316
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    Cited by:

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    2. Bakaouka, Elpiniki, 2025. "Royalty licensing in vertically related markets," Economics Letters, Elsevier, vol. 253(C).
    3. Chuyuan Zhang & Sang-Ho Lee, 2025. "Supply shift by a vertically integrated foreign firm under domestic integration," Journal of Economics, Springer, vol. 144(1), pages 31-57, January.
    4. Yen-Ju Lin & Yan-Shu Lin & Pei-Cyuan Shih, 2022. "Welfare reducing vertical licensing in the presence of complementary inputs," Journal of Economics, Springer, vol. 137(2), pages 121-143, October.
    5. 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.
    6. Wen-Jung Liang & Yi-Jie Wang, 2019. "Location, Price, And Welfare In The Oligopoly With One Online Firm," Economy & Business Journal, International Scientific Publications, Bulgaria, vol. 13(1), pages 148-160.
    7. Chrysovalantou Milliou, 2023. "Outsourcing without Cost Advantages," CESifo Working Paper Series 10645, CESifo.
    8. Chrysovalantou Milliou & Apostolis Pavlou, 2020. "Foreign direct investment in vertically related markets," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(1), pages 284-320, February.
    9. Elpiniki Bakaouka, 2024. "Horizontal licensing in vertically related markets," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 15(1), pages 57-94, March.
    10. Negoro, Kazuhiro & Matsubayashi, Nobuo, 2021. "Game-theoretic analysis of partner selection strategies for market entry in global supply chains," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 151(C).
    11. Luca Sandrini, 2023. "Innovation, competition, and incomplete adoption of a superior technology," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 32(6), pages 783-803, August.
    12. Pei-Cyuan Shih & Tsung-Han Chou & Hong Hwang & Yan-Shu Lin, 2024. "Technology Licensing under Successive Monopoly," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(3), pages 327-340, May.
    13. Yenipazarli, Arda, 2021. "Downstream entry revisited: Economic effects of entry in vertically-related markets," Omega, Elsevier, vol. 103(C).
    14. Kittaka, Yuta & Pan, Cong, 2023. "The bright side of outside market entry with manufacturer encroachment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 180(C).

    More about this item

    Keywords

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    JEL classification:

    • 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
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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