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Welfare reducing vertical licensing in the presence of complementary inputs

Author

Listed:
  • Yen-Ju Lin

    (Ming Chuan University)

  • Yan-Shu Lin

    (Ming Chuan University)

  • Pei-Cyuan Shih

    (Ming Chuan University)

Abstract

This research explores the welfare implications of vertical licensing when the final goods are produced by multiple complementary inputs. We spotlight the importance of two-part tariff input terms when there is a buyer–seller relationship after vertical licensing, which has different welfare ramifications depending on the product differentiation. When the products are less differentiated, our result shows welfare improving licensing, but when the products are more differentiated, the wholesale price is set above the supplier’s marginal cost through licensing, leading to the problem of double marginalization and reducing welfare. This study offers various policy implications, which go up against conventional wisdom that welfare improving licensing may not be attainable by considering multiple complementary inputs.

Suggested Citation

  • 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.
    • Handle: RePEc:kap:jeczfn:v:137:y:2022:i:2:d:10.1007_s00712-022-00782-y
    DOI: 10.1007/s00712-022-00782-y
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    References listed on IDEAS

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    Cited by:

    1. Kuang-Cheng Andy Wang & Dang-Long Bui & Yi-Jie Wang & Wen-Jung Liang, 2023. "International licensing under an endogenous tariff in vertically-related markets," Journal of Economics, Springer, vol. 139(2), pages 93-123, July.
    2. Pei-Cyuan Shih & Tsung-Han Chou & Hong Hwang & Yan-Shu Lin, 2024. "Technology Licensing under Successive Monopoly," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(3), pages 327-340, May.
    3. Manel Antelo & Antonio Sampayo, 2024. "Licensing of a new technology by an outside and uninformed licensor," Journal of Economics, Springer, vol. 142(2), pages 111-162, July.

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    More about this item

    Keywords

    Vertical licensing; Two-part tariffs; Input pricing; Complementary inputs; Vertically-related market; Social welfare;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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