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Licensing and Innovation with Imperfect Contract Enforcement

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  • Gilbert, Richard

    () (University of California, Berkeley)

  • Kristiansen, Eirik Gaard

    () (Dept. of Economics, Norwegian School of Economics and Business Administration)

Abstract

Licensing promotes technology transfer and innovation, but enforcement of licensing contracts is often imperfect. We explore the implications of weak enforcement of contractual commitments on the licensing conduct of firms and market performance. An upstream firm develops a technology that it can license to downstream firms using a fixed fee and a per-unit royalty. Strictly positive per-unit royalties maximize the licensor’s profit if competition among licensees limits joint profits. Although imperfect contract enforcement lowers the profits of the upstream firm, weak enforcement lowers prices, increases downstream innovation, and in some circumstances can increase total economic welfare.

Suggested Citation

  • Gilbert, Richard & Kristiansen, Eirik Gaard, 2015. "Licensing and Innovation with Imperfect Contract Enforcement," Discussion Paper Series in Economics 5/2015, Norwegian School of Economics, Department of Economics.
  • Handle: RePEc:hhs:nhheco:2015_005
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    Cited by:

    1. Carlo Capuano & Iacopo Grassi, 2019. "Imperfect patent protection, licensing, and Social Welfare," Economics Bulletin, AccessEcon, vol. 39(4), pages 2639-2649.
    2. Carlo Capuano & Iacopo Grassi, 2020. "Imperfect patent protection, licensing, and willingness to pay for the innovation," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 47(2), pages 333-359, June.
    3. Yi-Fan Chen & Alireza Naghavi & Shin-Kun Peng, 2021. "Learning by supplying and competition threat," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(1), pages 121-148, February.
    4. Yi-Fan Chen & Alireza Naghavi & Shin-Kun Peng, 0. "Learning by supplying and competition threat," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 0, pages 1-28.

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    More about this item

    Keywords

    Licensing; competition; innovation; imperfect contract enforcement.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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