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The welfare effect of bargaining power in the licensing of a cost-reducing technology

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  • Shin Kishimoto

    (Chiba University)

Abstract

This study considers licensing of a cost-reducing technology through bargaining between a technology-holding firm and its rival firm in a Cournot duopoly market. To consider the relative bargaining power of both firms, the asymmetric Nash bargaining solution is applied as our solution. Then, we specify the combinations of lump-sum fee and per-unit royalty that are realized through bargaining, and examine the effect on social welfare of the technology-holding firm’s bargaining power. The principal findings are as follows. Regardless of the technology-holding firm’s bargaining power, pure royalty licensing is carried out, and social welfare is non-increasing in its bargaining power. In our model, licensing through a take-it-or-leave-it offer, which is often assumed in the literature, is regarded as the case in which the technology-holding firm has full bargaining power. Thus, the result on social welfare implies that the take-it-or-leave-it offer licensing mechanism leads to the socially worst outcome.

Suggested Citation

  • Shin Kishimoto, 2020. "The welfare effect of bargaining power in the licensing of a cost-reducing technology," Journal of Economics, Springer, vol. 129(2), pages 173-193, March.
    • Handle: RePEc:kap:jeczfn:v:129:y:2020:i:2:d:10.1007_s00712-019-00672-w
    DOI: 10.1007/s00712-019-00672-w
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    References listed on IDEAS

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    Cited by:

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    2. Yen-Ju Lin & Yan-Shu Lin & Pei-Cyuan Shih, 2022. "Welfare reducing vertical licensing in the presence of complementary inputs," Journal of Economics, Springer, vol. 137(2), pages 121-143, October.
    3. Brander, James A. & Spencer, Barbara J., 2021. "Patent assertion entities and the courts: Injunctive or fee-based relief?," International Review of Law and Economics, Elsevier, vol. 65(C).
    4. Sun, Chia-Hung, 2023. "Timing of technology adoption in the presence of patent licensing," Economic Modelling, Elsevier, vol. 127(C).
    5. Brander, James A. & Spencer, Barbara J., 2023. "Intellectual property infringement by foreign firms: Import protection through the ITC or court," Journal of International Economics, Elsevier, vol. 140(C).

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    More about this item

    Keywords

    Licensing; Cost-reducing technology; Asymmetric Nash bargaining solution; Bargaining power; Social welfare;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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