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Trade Policy in the Presence of Technology Licensing

Author

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  • Arghya Ghosh

    (University of Minnesota)

  • Souresh Saha

    (National University of Singapore)

Abstract

This paper reconsiders strategic trade policy when a high-cost and a low-cost firm belonging to different countries compete a la Cournot in a third country market and technology is transferable. Assuming technology is transferred via licensing, optimal trade policy is characterized. Apart from affecting product-market profits - which is standard in this literature - any subsidy or tax also affects the licensing decision and the surplus generated from licensing. Considering the effects of subsidy on profits, surplus and the subsidy bill, we find that both the governments would often opt for lower subsidy compared to the Brander-Spencer subsidy rate - the optimal subsidy rate in the absence of possibility of licensing. In fact, for a range of cost parameters, optimal policy for the government of the high-cost firm turns out to be a tax. Further, in contrast to the existing literature on strategic trade policy with asymmetric costs we find non-monotone relationship between optimal subsidy and cost-competitiveness of firms. In particular, we find that efficient firms might be taxed while relatively less efficient firms might be subsidized.

Suggested Citation

  • Arghya Ghosh & Souresh Saha, 2000. "Trade Policy in the Presence of Technology Licensing," Econometric Society World Congress 2000 Contributed Papers 0592, Econometric Society.
  • Handle: RePEc:ecm:wc2000:0592
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    References listed on IDEAS

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    Cited by:

    1. Neelanjan Sen, 2015. "Technology transfer and its effect on innovation," Economics Bulletin, AccessEcon, vol. 35(4), pages 2523-2534.
    2. 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.
    3. Aoki, Shuhei, 2011. "A Model of Technology Transfer in Japan's Rapid Economic Growth Period," MPRA Paper 29235, University Library of Munich, Germany.
    4. Xuan Nguyen & Pasquale Sgro & Munirul Nabin, 2017. "Optimal Licensing Policy under Vertical Product Differentiation," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 497-510, August.
    5. Ghosh, Arghya & Saha, Souresh, 2015. "Price competition, technology licensing and strategic trade policy," Economic Modelling, Elsevier, vol. 46(C), pages 91-99.
    6. Poddar, Sougata & Bouguezzi, Fehmi, 2011. "Patent licensing in spatial competition: Does pre-innovation cost asymmetry matter?," MPRA Paper 32764, University Library of Munich, Germany.
    7. ISHIKAWA Jota & OKUBO Toshihiro, 2013. "Trade and Industrial Policy Subtleties with International Licensing," Discussion papers 13050, Research Institute of Economy, Trade and Industry (RIETI).
    8. Munirul H. Nabin & Xuan Nguyen & Pasquale M. Sgro, 2013. "Technology Transfer, Quality Standards, and North–South Trade," Review of International Economics, Wiley Blackwell, vol. 21(4), pages 783-796, September.
    9. Kabiraj, Abhishek & Kabiraj, Tarun, 2017. "Tariff induced licensing contracts, consumers’ surplus and welfare," Economic Modelling, Elsevier, vol. 60(C), pages 439-447.

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