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Licensing under convex costs

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  • Arijit Mukherjee

Abstract

We show that both the outside and inside innovators license a new product (or drastic process innovation) to all potential licensees in the presence of convex costs, which occur under decreasing returns to scale technologies. An implication of our analysis is that a monopolist producer may prefer technology licensing in a homogeneous goods industry. We also show that an inside innovator’s incentive for innovation may be higher than that of an outside innovator. Copyright Springer-Verlag Wien 2014

Suggested Citation

  • Arijit Mukherjee, 2014. "Licensing under convex costs," Journal of Economics, Springer, vol. 111(3), pages 289-299, April.
    • Handle: RePEc:kap:jeczfn:v:111:y:2014:i:3:p:289-299
    DOI: 10.1007/s00712-013-0333-9
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    References listed on IDEAS

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    11. Sen, Debapriya & Tauman, Yair, 2007. "General licensing schemes for a cost-reducing innovation," Games and Economic Behavior, Elsevier, vol. 59(1), pages 163-186, April.
    12. Joseph Farrell & Nancy T. Gallini, 1988. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(4), pages 673-694.
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    15. Rockett, Katharine, 1990. "The quality of licensed technology," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 559-574, December.
    16. X. Henry Wang & Bill Z. Yang, 2003. "A Note on Technology Transfer by a Monopoly," Australian Economic Papers, Wiley Blackwell, vol. 42(1), pages 50-55, March.
    17. Mukherjee, Arijit & Balasubramanian, N., 2001. "Technology transfer in a horizontally differentiated product market," Research in Economics, Elsevier, vol. 55(3), pages 257-274, September.
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    19. Can Erutku & Yves Richelle, 2007. "Optimal Licensing Contracts and the Value of a Patent," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(2), pages 407-436, June.
    20. Mukherjee, Arijit & Pennings, Enrico, 2006. "Tariffs, licensing and market structure," European Economic Review, Elsevier, vol. 50(7), pages 1699-1707, October.
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    22. Gallini, Nancy T, 1984. "Deterrence by Market Sharing: A Strategic Incentive for Licensing," American Economic Review, American Economic Association, vol. 74(5), pages 931-941, December.
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    Citations

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    Cited by:

    1. Kazuhiro Takauchi & Tomomichi Mizuno & Katsufumi Fukuda, 2024. "Strategic export decisions in international trade," Discussion Papers 2401, Graduate School of Economics, Kobe University.
    2. Sun, Chia-Hung, 2023. "Timing of technology adoption in the presence of patent licensing," Economic Modelling, Elsevier, vol. 127(C).
    3. Stefano Colombo & Luigi Filippini, 2016. "Revenue royalties," Journal of Economics, Springer, vol. 118(1), pages 47-76, May.
    4. Arijit Mukherjee, 2020. "Optimal Licensing Contract: The Implications of Preference Function," Arthaniti: Journal of Economic Theory and Practice, , vol. 19(1), pages 61-67, June.
    5. 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.
    6. Ramon Fauli‐Oller & Joel Sandonís, 2022. "Fee versus royalty licensing in a Cournot duopoly with increasing marginal costs," Manchester School, University of Manchester, vol. 90(4), pages 439-452, July.

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    More about this item

    Keywords

    Licensing; Innovation; Convex cost; Auction; Royalty; D21; D43; D45; L13;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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