Welfare reducing vertical licensing in the presence of complementary inputs

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 ramific...

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Bibliographic Details
Published in:Journal of economics (Vienna, Austria) Austria), 2022-10, Vol.137 (2), p.121-143
Main Authors: Lin, Yen-Ju, Lin, Yan-Shu, Shih, Pei-Cyuan
Format: Article
Language:English
Subjects:
Aircraft industry
Competition
Cost control
Differentiation
Economic theory
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Game Theory
Incentives
Licensing
Macroeconomics/Monetary Economics//Financial Economics
Marginality
Microeconomics
Product differentiation
Profits
Public Finance
Social and Behav. Sciences
Social exclusion
Suppliers
Tariffs
Welfare
Wisdom
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Summary: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.
ISSN:0931-8658
1617-7134
DOI:10.1007/s00712-022-00782-y