Product licensing in a Stackelberg industry

Antelo, Manel and Bru, Lluís (2022): Product licensing in a Stackelberg industry.

Abstract

We study in a Stackelberg industry the licensing of a product that embodies an innovation (a quality-improving product). The innovation may be owned by the firm that acts as the leader or follower in the marketplace. If the innovation owner is the market leader, licensing takes place and consists of a revenue royalty with no fixed payment, but is not socially desirable, because it yields a more collusive industry. However, if the innovation owner is the market follower, licensing does not hold, even though it would be welfare enhancing and thus socially desirable. Thus, stimulating licensing by subsidizing a follower firm owning a product innovation would benefit both consumers and society as a whole.

• Item Type: MPRA Paper
• Language: English
• Keywords: Vertical differentiation, licensing, per-unit and ad-valorem royalties, market leader and follower, welfare
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D45 - Rationing ; Licensing

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