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Technology Licensing between Rival Firms in Presence of Asymmetric Information

Author

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  • Sen Neelanjan

    (Department of Commerce, St. Xavier’s College, 30 Mother Teresa Sarani, Kolkata-700016, India)

  • Bhattacharya Sukanta

    (Department of Economics, University of Calcutta, 56A, B.T. Road, Kolkata-700050, India)

Abstract

This paper investigates the possibility of licensing between rival firms in a Cournot duopoly market. Unlike Heywood, Li, and Ye (2014. “Per Unit vs. Ad Valorem Royalties under Asymmetric Information.” International Journal of Industrial Organization 37:38–46), the cost information of the licensee is private in the pre-licensing stage. If inspection of the licensee’s technology is not possible by the licensor i) technology is never transferred from the low-cost firm (licensor) to the high-cost firm (licensee) via fixed-fee and ii) in the case of royalty licensing technology will be transferred only if the cost difference between the firms is sufficiently high. Moreover, under fixed-fee and royalty licensing, the licensee will always allow the licensor to inspect its technology, if inspection is possible. If inspection is undertaken by the licensor, technology will be transferred i) if the cost difference is low via fixed fee and ii) always via royalty.

Suggested Citation

  • Sen Neelanjan & Bhattacharya Sukanta, 2017. "Technology Licensing between Rival Firms in Presence of Asymmetric Information," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 17(1), pages 1-35, January.
    • Handle: RePEc:bpj:bejtec:v:17:y:2017:i:1:p:35:n:8
    DOI: 10.1515/bejte-2015-0097
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    References listed on IDEAS

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    1. Vishwasrao, Sharmila, 2007. "Royalties vs. fees: How do firms pay for foreign technology?," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 741-759, August.
    2. Henry Wang, X., 2002. "Fee versus royalty licensing in a differentiated Cournot duopoly," Journal of Economics and Business, Elsevier, vol. 54(2), pages 253-266.
    3. Heywood, John S. & Li, Jianpei & Ye, Guangliang, 2014. "Per unit vs. ad valorem royalties under asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 38-46.
    4. Schmitz, Patrick W., 2002. "On Monopolistic Licensing Strategies under Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 106(1), pages 177-189, September.
    5. Bessen, James, 2004. "Holdup and licensing of cumulative innovations with private information," Economics Letters, Elsevier, vol. 82(3), pages 321-326, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Arijit Mukherjee & Aniruddha Bagchi, 2020. "Information Disclosure through Technology Licensing," Games, MDPI, vol. 11(3), pages 1-8, September.
    2. Swapnendu Banerjee & Arijit Mukherjee & Sougata Poddar, 2023. "Optimal patent licensing—Two or three‐part tariff," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(3), pages 624-648, June.
    3. 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.
    4. Liu Yao & Mukherjee Arijit, 2024. "Lobbying for Tariff Protection, International Technology Licensing and Consumer Surplus," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 24(1), pages 117-139, January.
    5. Cheng‐Tai Wu & Tsung‐Sheng Tsai, 2024. "Patent licensing for signaling the cost‐reduction innovation: The case of the insider innovator," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 26(1), February.
    6. Lindblom Ted & Mallios Aineas & Sjögren Stefan, 2024. "A Theoretical Analysis of Collusion Involving Technology Licensing Under Diseconomies of Scale," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 24(1), pages 263-297, January.

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    More about this item

    Keywords

    technology licensing; cournot competition; asymmetry information;
    All these keywords.

    JEL classification:

    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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