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Welfare reducing licensing by an outside innovator

Author

Listed:
  • Arijit Mukherjee

    (Nottingham University Business School
    INFER
    CESifo
    City University of Hong Kong)

  • Uday Bhanu Sinha

    (University of Delhi)

Abstract

It is commonly believed that licensing of cost reducing technology increases welfare. We show that technology licensing by an outside innovator may reduce welfare when the technology is not useful for all final goods producers. Technology licensing reduces welfare if cost reduction by the licensed technology is small and the initial cost difference of the final goods producers is large. A higher intensity of competition, either due to lower product differentiation or due to Bertrand competition instead of Cournot competition, increases the possibility of welfare reducing licensing.

Suggested Citation

  • Arijit Mukherjee & Uday Bhanu Sinha, 2024. "Welfare reducing licensing by an outside innovator," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 12(1), pages 17-24, June.
    • Handle: RePEc:spr:etbull:v:12:y:2024:i:1:d:10.1007_s40505-023-00259-1
    DOI: 10.1007/s40505-023-00259-1
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Auction; Fixed-fee; Outside innovator; Technology licensing; Welfare;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • 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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