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Investment and Patent Licensing in the Value Chain

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  • Llobet, Gerard
  • Neven, Damien

Abstract

We analyze the welfare effects of patent licensing at different stages of the production chain and the level at which a patent holder would choose to license. We consider the incentive to invest in enhancing the value of the final product at the different stages of production. We study the effects of allowing a patent holder to discriminate among different products downstream and/or accounting for differences in information that potential licensees at different stages might have about the validity of the patent. We show that in those circumstances, a conflict arises between the stage at which patent holders prefer to license their technology and the stage at which it is optimal from a social standpoint that licensing takes place. Whereas the patent holder usually prefers to target downstream firms, society is often better off if upstream firms take the license.

Suggested Citation

  • Llobet, Gerard & Neven, Damien, 2022. "Investment and Patent Licensing in the Value Chain," CEPR Discussion Papers 17405, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17405
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    1. Olena Ivus & Edwin L.‐C. Lai & Ted Sichelman, 2020. "An economic model of patent exhaustion," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(4), pages 816-833, October.
    2. Gerard Llobet & Jorge Padilla, 2016. "The Optimal Scope of the Royalty Base in Patent Licensing," Journal of Law and Economics, University of Chicago Press, vol. 59(1), pages 45-73.
    3. Anne LAYNE-FARRAR & Gerard LLOBET & Jorge PADILLA, 2014. "Patent Licensing in Vertically Disaggregated Industries: The Royalty Allocation Neutrality Principle," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(95), pages 61-84, 3rd quart.
    4. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
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    Cited by:

    1. Wipusanawan, Chayanin, 2023. "Standard-essential patents, innovation, and competition," Other publications TiSEM 292e319a-9e6a-4465-8f8f-7, Tilburg University, School of Economics and Management.

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    More about this item

    Keywords

    R&d investment; Standard setting organizations; Patent licensing; Royalty neutrality;
    All these keywords.

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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