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Growth and Welfare Effects of Interventions in Patent Licensing Negotiations

Kishimoto, Shin and Suzuki, Keishun (2021): Growth and Welfare Effects of Interventions in Patent Licensing Negotiations.

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Abstract

Policy makers sometimes intervene in patent licensing negotiations to guide licensing fees, but the impacts of such interventions on economic growth and welfare are relatively unknown. This paper develops a novel Schumpeterian growth model featuring a cooperative game-theoretic framework that describes negotiations about licensing fees. We find that the growth effect of intervention is negative if firms can raise unlimited external funds for their R&D investment. However, when the amount of external funds available is limited, both the growth and the welfare effects of intervention can be positive. This result means that interventions are desirable when the internal funds of firms are the main source of their R&D investment.

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