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Fee vs. Royalty Licensing and Consumers’ Welfare

Author

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  • Tarun Kabiraj

    (Indian Statistical Institute)

Abstract

In a duopolistic trade model we have shown that a tariff can influence the optimal licensing strategy of the foreign firm. A high tariff will induce fee licensing and a low tariff will result in a royalty licensing. From the viewpoint of the consumers both high tariff and high royalty are distortionary; hence there is a trade-off between a tariff and a royalty. Assuming consumers’ welfare maximization as an objective of the government, we show that royalty licensing is induced if the cost saving under foreign technology is small; otherwise fee licensing is induced by an appropriate choice of tariffs.

Suggested Citation

  • Tarun Kabiraj, 2018. "Fee vs. Royalty Licensing and Consumers’ Welfare," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(3), pages 749-767, September.
  • Handle: RePEc:spr:jqecon:v:16:y:2018:i:3:d:10.1007_s40953-017-0111-6
    DOI: 10.1007/s40953-017-0111-6
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    References listed on IDEAS

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    More about this item

    Keywords

    Tariffs; Fee licensing; Royalty licensing; Consumers’ welfare;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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