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Bargaining over entry with a compulsory license deadline: Price spillovers and surplus expansion

Author

Listed:
  • Eric W Bond

    () (Vanderbilt University)

  • Kamal Saggi

    () (Vanderbilt University)

Abstract

We analyze bargaining between a developing country (South) and a multinational firm over the local price of its patented product. We use an alternating offers bargaining game in which the South can resort to compulsory licensing (CL) if the two parties fail to reach agreement by a certain deadline. The presence of international price spillovers introduces two novel features into the standard bargaining problem: (i) the surplus from entry prior to the CL deadline may be negative and (ii) CL can yield higher surplus than entry. We establish conditions under which equilibrium may exhibit immediate entry, preemptive entry just prior to the CL deadline, or the occurrence of CL. The South necessarily gains from the threat of CL if the joint payoff under entry is higher relative to CL but can lose if it is lower.

Suggested Citation

  • Eric W Bond & Kamal Saggi, 2016. "Bargaining over entry with a compulsory license deadline: Price spillovers and surplus expansion," Vanderbilt University Department of Economics Working Papers 16-00009, Vanderbilt University Department of Economics.
  • Handle: RePEc:van:wpaper:vuecon-sub-16-00008
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
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    More about this item

    Keywords

    Patented Goods; Compulsory Licensing; Bargaining; Quality; Welfare.;

    JEL classification:

    • F1 - International Economics - - Trade
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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