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Product licensing in a Stackelberg industry

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  • Antelo, Manel
  • Bru, Lluís

Abstract

We study in a Stackelberg industry the licensing of a product that embodies an innovation (a quality-improving product). The innovation may be owned by the firm that acts as the leader or follower in the marketplace. If the innovation owner is the market leader, licensing takes place and consists of a revenue royalty with no fixed payment, but is not socially desirable, because it yields a more collusive industry. However, if the innovation owner is the market follower, licensing does not hold, even though it would be welfare enhancing and thus socially desirable. Thus, stimulating licensing by subsidizing a follower firm owning a product innovation would benefit both consumers and society as a whole.

Suggested Citation

  • Antelo, Manel & Bru, Lluís, 2022. "Product licensing in a Stackelberg industry," MPRA Paper 113985, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:113985
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    References listed on IDEAS

    as
    1. Nalin Kulatilaka & Lihui Lin, 2006. "Impact of Licensing on Investment and Financing of Technology Development," Management Science, INFORMS, vol. 52(12), pages 1824-1837, December.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Vertical differentiation; licensing; per-unit and ad-valorem royalties; market leader and follower; welfare;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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