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Robustness of subsidy in licensing under vertical differentiation: General distribution and cost functions

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  • Hattori, Masahiko
  • Tanaka, Yasuhito

Abstract

We extend the analysis of a possibility of negative royalty in licensing under oligopoly with an outside or an incumbent innovator by Liao and Sen (2005) to a case of oligopoly with vertical product differentiation under general distribution function of consumer' taste parameter and general cost functions. We consider both outside innovator case and incumbent innovator case. When the non-licensee does not drop out of the market; in the outside innovator case, if the goods of the firms are strategic substitutes (or complements), the optimal royalty rate is negative (or may be negative or positive); in the incumbent innovator case, if the goods are strategic substitutes (or complements), the optimal royalty rate may be negative or positive (is positive). When the non-licensee drops out of the market with negative royalty; in both cases, 1) If the goods are strategic substitutes, the optimal royalty rate is negative, 2) If the goods are strategic complements, the optimal royalty rate is positive.

Suggested Citation

  • Hattori, Masahiko & Tanaka, Yasuhito, 2017. "Robustness of subsidy in licensing under vertical differentiation: General distribution and cost functions," MPRA Paper 78857, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:78857
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    References listed on IDEAS

    as
    1. Hattori, Masahiko & Tanaka, Yasuhito, 2017. "License and entry strategies for outside innovator in duopoly," MPRA Paper 76444, University Library of Munich, Germany.
    2. Hattori, Masahiko & Tanaka, Yasuhito, 2017. "License and entry strategies for an outside innovator in duopoly with combination of royalty and fixed fee under vertical differentiation," MPRA Paper 78856, University Library of Munich, Germany.
    3. Sen, Debapriya & Stamatopoulos, Giorgos, 2016. "Licensing under general demand and cost functions," European Journal of Operational Research, Elsevier, vol. 253(3), pages 673-680.
    4. Masahiko Hattori & Yasuhito Tanaka, 2018. "License and Entry Strategies for an Outside Innovator Under Duopoly with Combination of Royalty and Fixed Fee," Journal of Industry, Competition and Trade, Springer, vol. 18(4), pages 485-502, December.
    5. Seade, Jesus, 1980. "The stability of cournot revisited," Journal of Economic Theory, Elsevier, vol. 23(1), pages 15-27, August.
    6. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-122, February.
    7. Bonanno, Giacomo & Haworth, Barry, 1998. "Intensity of competition and the choice between product and process innovation," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 495-510, July.
    8. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    9. Chun‐Hsiung Liao & Debapriya Sen, 2005. "Subsidy In Licensing: Optimality And Welfare Implications," Manchester School, University of Manchester, vol. 73(3), pages 281-299, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    negative royalty; vertical differentiation; general distribution and cost functions;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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