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Vertical Licensing, Input Pricing, and Entry

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  • 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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    4. 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.
    5. Yenipazarli, Arda, 2021. "Downstream entry revisited: Economic effects of entry in vertically-related markets," Omega, Elsevier, vol. 103(C).

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    More about this item

    Keywords

    licensing; vertical relations; entry; two-part tariffs; outsourcing;
    All these keywords.

    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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