Technology Licensing under Successive Monopoly

Assume that there is an outside innovator who owns a cost-reducing innovation and the market structure of the industry in question is that of successive monopoly. It is found that, an innovation that is aimed at an upstream firm will tend to be accompanied by a fixed fee license, while an innovation...

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Bibliographic Details
Published in:Review of industrial organization 2024-05, Vol.64 (3), p.327-340
Main Authors: Shih, Pei-Cyuan, Chou, Tsung-Han, Hwang, Hong, Lin, Yan-Shu
Format: Article
Language:English
Subjects:
Economics
Economics and Finance
Equilibrium
Fees & charges
Industrial Organization
Innovations
Licenses
Licensing
Market structure
Markets
Microeconomics
Monopolies
Production
Raw materials
Royalty
Social welfare
Tariffs
Technological change
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Summary:Assume that there is an outside innovator who owns a cost-reducing innovation and the market structure of the industry in question is that of successive monopoly. It is found that, an innovation that is aimed at an upstream firm will tend to be accompanied by a fixed fee license, while an innovation that is aimed at a downstream firm will tend to be accompanied by a per-unit royalty license. But the former is reversed if the market structure of the final goods becomes duopolistic: The optimal licensing contract could never be that of fixed fee when licensing occurs at the upmost production stage. Moreover, the industry profit, consumer surplus and social welfare are all maximized when the licensing occurs at the upmost production stage.
ISSN:0889-938X
1573-7160
DOI:10.1007/s11151-024-09951-3