Welfare reducing licensing

  1. Faulí Oller, Ramon
  2. Sandonís Díez, Joel
Revista:
Working papers = Documentos de trabajo: Serie AD

Año de publicación: 2000

Número: 12

Tipo: Documento de Trabajo

Resumen

http://www.ivie.es/downloads/docs/wpasad/wpasad-2000-14.pdfIn this paper, we characterize situations where licensing an innovation to a rival firm using two-part tariff contracts (a fixed fee plus a linear per unit of output royalty) reduces social welfare. We show that it occurs if and only if i) the goods are close enough substitutes, ii) the innovation is large enough but not drastic and iii) the firms compete in prices. Moreover, we show that, regardless of the type of competition, first, the optimal contract always includes a positive royalty and, second, even drastic innovations are licensed whenever the goods are not homogeneous.