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Optimal Licensing Policy in Differentiated Industries

  • Nisvan Erkal

This paper analyses the policy implications of licensing between producers of differentiated goods. We consider and compare two-part tariff, fixed fee, royalty and collusive licensing contracts. Under the optimal licensing policy, there will be no technology transfers if the innovation size is sufficiently small and degree of product differentiation is sufficiently low. On the other hand, licensing deals that involve drastic innovations are always socially desirable. In the limit, as product differentiation converges to zero, it becomes socially desirable to transfer drastic innovations only. The range of innovation sizes that is socially optimal to transfer increases as product differentiation increases.

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Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 894.

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Length: 36 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:mlb:wpaper:894
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