IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v36y2014icp600-606.html
   My bibliography  Save this article

Licensing under vertical product differentiation: Price vs. quantity competition

Author

Listed:
  • Nguyen, Xuan
  • Sgro, Pasquale
  • Nabin, Munirul

Abstract

This paper develops a duopoly model of vertical product differentiation where two domestic firms incur variable costs of quality development. These domestic firms can purchase a superior foreign technology through licensing. Outcomes between Bertrand and Cournot competition are compared. We find that licensing raises domestic welfare, and domestic welfare is higher in Bertrand than in Cournot competition regardless of whether or not domestic firms engage in licensing. Non-exclusive licensing is also found to benefit the domestic country more than exclusive licensing.

Suggested Citation

  • Nguyen, Xuan & Sgro, Pasquale & Nabin, Munirul, 2014. "Licensing under vertical product differentiation: Price vs. quantity competition," Economic Modelling, Elsevier, vol. 36(C), pages 600-606.
    • Handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:600-606
    DOI: 10.1016/j.econmod.2013.10.013
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999313004392
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2013.10.013?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Tsuyoshi Toshimitsu, 2005. "Tariffs, Quality Choice, and Cost Functions: a Foreign Monopoly Case," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 376-384, May.
    2. Das, Satya P. & Donnenfeld, Shabtai, 1989. "Oligopolistic competition and international trade : Quantity and quality restrictions," Journal of International Economics, Elsevier, vol. 27(3-4), pages 299-318, November.
    3. Justin P. Johnson & David P. Myatt, 2003. "Multiproduct Quality Competition: Fighting Brands and Product Line Pruning," American Economic Review, American Economic Association, vol. 93(3), pages 748-774, June.
    4. Munirul H. Nabin & Xuan Nguyen & Pasquale M. Sgro, 2013. "Technology Transfer, Quality Standards, and North–South Trade," Review of International Economics, Wiley Blackwell, vol. 21(4), pages 783-796, September.
    5. Li, Changying & Ji, Xiaoming, 2010. "Innovation, licensing, and price vs. quantity competition," Economic Modelling, Elsevier, vol. 27(3), pages 746-754, May.
    6. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
    7. Changying Li & Junmei Wang, 2010. "Licensing a Vertical Product Innovation," The Economic Record, The Economic Society of Australia, vol. 86(275), pages 517-527, December.
    8. Nicolas Boccard & Xavier Wauthy, 2005. "Enforcing Domestic Quality Dominance through Quotas," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 250-261, May.
    9. Analysis, A Welfare & Das, Satya P. & Donnenfeld, Shabtai, 1987. "Trade policy and its impact on quality of imports," Journal of International Economics, Elsevier, vol. 23(1-2), pages 77-95, August.
    10. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    11. Aoki, Reiko & Prusa, Thomas J., 1997. "Sequential versus simultaneous choice with endogenous quality," International Journal of Industrial Organization, Elsevier, vol. 15(1), pages 103-121, February.
    12. Symeonidis, George, 2003. "Comparing Cournot and Bertrand equilibria in a differentiated duopoly with product R&D," International Journal of Industrial Organization, Elsevier, vol. 21(1), pages 39-55, January.
    13. Li, Changying & Song, Juan, 2009. "Technology licensing in a vertically differentiated duopoly," Japan and the World Economy, Elsevier, vol. 21(2), pages 183-190, March.
    14. Hackner, Jonas, 2000. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Journal of Economic Theory, Elsevier, vol. 93(2), pages 233-239, August.
    15. Markus Reisinger & Ludwig Ressner, 2009. "The Choice of Prices versus Quantities under Uncertainty," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1155-1177, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zou, Yuxiang & Chen, Tai-Liang, 2020. "Quality differentiation and product innovation licensing," Economic Modelling, Elsevier, vol. 87(C), pages 372-382.
    2. Masahiko Hattori & Yasuhito Tanaka, 2016. "License or entry with vertical differentiation in duopoly," Economics and Business Letters, Oviedo University Press, vol. 5(1), pages 17-29.
    3. Tian, Xiaoli, 2016. "Licensing a quality-enhancing innovation to an upstream firm," Economic Modelling, Elsevier, vol. 53(C), pages 509-514.
    4. Xu, Lili & Cho, Sumi & Lee, Sang-Ho, 2016. "Emission tax and optimal privatization in Cournot–Bertrand comparison," Economic Modelling, Elsevier, vol. 55(C), pages 73-82.
    5. Xingtang Wang, 2023. "Who is more aggressive under vertical product differentiation?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 608-618, January.
    6. Yang, Le & Huang, Zining, 2023. "Quality-improving licensing of an outside innovator in a mixed Cournot duopoly," Economic Modelling, Elsevier, vol. 126(C).
    7. Wu, Cheng-Han, 2018. "Price competition and technology licensing in a dynamic duopoly," European Journal of Operational Research, Elsevier, vol. 267(2), pages 570-584.
    8. Nguyen, Xuan, 2015. "On the efficiency of private and state-owned enterprises in mixed markets," Economic Modelling, Elsevier, vol. 50(C), pages 130-137.
    9. Tai‐Liang Chen & Zuyi Huang, 2020. "Technology licensing or cost‐reducing outsourcing? Game theoretical analysis on consumers' home bias effects and firms' optimal strategies," Bulletin of Economic Research, Wiley Blackwell, vol. 72(4), pages 417-433, October.
    10. Miao, Zhuang, 2019. "Income Distribution, Vertical Differentiation, and the Quantity Competition," MPRA Paper 95104, University Library of Munich, Germany.
    11. Masahiko Hattori & Yasuhito Tanaka, 2017. "License or Entry in Duopoly with Quality Improving Innovation: Alternative Definitions of License Fee," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 13(1), pages 1-26, February.
    12. 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.
    13. Wang, Xingtang, 2022. "Input price discrimination, pricing contract and social welfare," Mathematical Social Sciences, Elsevier, vol. 119(C), pages 91-96.
    14. Sergio Daga & Pedro Mendi, 2022. "Informal input suppliers, quality choice and welfare," Journal of Economics, Springer, vol. 136(2), pages 149-176, July.
    15. Hong, Xianpei & Zhou, Menghuan & Gong, Yeming, 2021. "Dilemma of quality information disclosure in technology licensing," European Journal of Operational Research, Elsevier, vol. 294(2), pages 543-557.
    16. Xuan Nguyen & Chi†Chur Chao & Pasquale Sgro & Munirul Nabin, 2017. "Cross†border Travellers and Parallel Trade: Implications for Asian Economies," The World Economy, Wiley Blackwell, vol. 40(8), pages 1531-1546, August.
    17. Neelanjan Sen & Saumya Kaul & Rajit Biswas, 2021. "Technology licensing under product differentiation," Journal of Economics, Springer, vol. 134(3), pages 219-260, December.
    18. Wang Jing & Yang Fangbai, 2017. "Optimal Two-Part Tariff Licensing in a Differentiated Mixed Duopoly," Journal of Systems Science and Information, De Gruyter, vol. 5(3), pages 279-288, June.
    19. Luciano Fanti & Nicola Meccheri, 2015. "On the Cournot–Bertrand Profit Differential and the Structure of Unionisation in a Managerial Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 54(4), pages 266-287, December.
    20. Zhao, Dan & Chen, Hongmin & Hong, Xianpei & Liu, Jingfang, 2014. "Technology licensing contracts with network effects," International Journal of Production Economics, Elsevier, vol. 158(C), pages 136-144.
    21. Ping-Sing Kuo & Yan-Shu Lin & Cheng-Hau Peng, 2016. "International Technology Transfer and Welfare," Review of Development Economics, Wiley Blackwell, vol. 20(1), pages 214-227, February.
    22. Ji Sun & Qiang Gong & Leonard F. S. Wang, 2022. "Revenge consumption, government‐led voucher, and social welfare," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2570-2577, September.
    23. Kabiraj, Abhishek & Kabiraj, Tarun, 2017. "Tariff induced licensing contracts, consumers’ surplus and welfare," Economic Modelling, Elsevier, vol. 60(C), pages 439-447.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xuan Nguyen & Pasquale Sgro & Munirul Nabin, 2017. "Optimal Licensing Policy under Vertical Product Differentiation," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 497-510, August.
    2. Morita, Hodaka & Nguyen, Xuan, 2021. "FDI and quality-enhancing technology spillovers," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    3. Munirul H. Nabin & Xuan Nguyen & Pasquale M. Sgro, 2013. "Technology Transfer, Quality Standards, and North–South Trade," Review of International Economics, Wiley Blackwell, vol. 21(4), pages 783-796, September.
    4. Hodaka Morita & Xuan Nguyen, 2012. "FDI and Technology Spillovers under Vertical Product Di erentiation," Discussion Papers 2012-19, School of Economics, The University of New South Wales.
    5. Onur A. Koska, 2020. "Sourcing product quality for foreign market entry," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(3), pages 669-702, August.
    6. Nguyen, Xuan & Chao, Chi-Chur, 2021. "Revenge consumption, product quality, and welfare," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 495-501.
    7. Zou, Yuxiang & Chen, Tai-Liang, 2020. "Quality differentiation and product innovation licensing," Economic Modelling, Elsevier, vol. 87(C), pages 372-382.
    8. Hong, Xianpei & Zhou, Menghuan & Gong, Yeming, 2021. "Dilemma of quality information disclosure in technology licensing," European Journal of Operational Research, Elsevier, vol. 294(2), pages 543-557.
    9. Nabin, Munirul H. & Nguyen, Xuan & Sgro, Pasquale M. & Chao, Chi-Chur, 2014. "Strategic quality competition, mixed oligopoly and privatization," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 142-150.
    10. John Gilbert & Onur A. Koska & Reza Oladi, 2020. "Product Quality and Strategic Asymmetry in International Trade," Working Papers in Economics 20/05, University of Canterbury, Department of Economics and Finance.
    11. Lutz, Stefan H., 2002. "The Effects of Quotas on Vertical Intra-Industry Trade," ZEW Discussion Papers 02-61, ZEW - Leibniz Centre for European Economic Research.
    12. Joaquín Andaluz & Gloria Jarne, 2016. "Stability of vertically differentiated Cournot and Bertrand-type models when firms are boundedly rational," Annals of Operations Research, Springer, vol. 238(1), pages 1-25, March.
    13. Yurko, Anna V., 2011. "How does income inequality affect market outcomes in vertically differentiated markets?," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 493-503, July.
    14. Derek Eaton, 2013. "Innovation and IPRs in the Agricultural Seed Sector," CIES Research Paper series 19-2013, Centre for International Environmental Studies, The Graduate Institute.
    15. Eaton, Derek, 2015. "Innovation and IPRs for Agricultural Crop Varieties as Intermediate Goods," 2015 Conference, August 9-14, 2015, Milan, Italy 211581, International Association of Agricultural Economists.
    16. Zhou, Dongsheng & Spencer, Barbara J. & Vertinsky, Ilan, 2002. "Strategic trade policy with endogenous choice of quality and asymmetric costs," Journal of International Economics, Elsevier, vol. 56(1), pages 205-232, January.
    17. S Lutz, 2005. "Can a Tariff on Foreign Competition Harm the Domestic Industry?," Economics Discussion Paper Series 0510, Economics, The University of Manchester.
    18. Luciano Fanti & Nicola Meccheri, 2015. "On the Cournot–Bertrand Profit Differential and the Structure of Unionisation in a Managerial Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 54(4), pages 266-287, December.
    19. Nguyen, Xuan, 2015. "On the efficiency of private and state-owned enterprises in mixed markets," Economic Modelling, Elsevier, vol. 50(C), pages 130-137.
    20. José Luis Moraga Gonzales & Jean-Marie Viaene, 2001. "Trade and Industrial Policy of Transition Economies," CESifo Working Paper Series 446, CESifo.

    More about this item

    Keywords

    Bertrand; Cournot; Licensing; Oligopoly; Product differentiation; Welfare;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:600-606. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.