Welfare reducing licensing by an outside innovator

It is commonly believed that licensing of cost reducing technology increases welfare. We show that technology licensing by an outside innovator may reduce welfare when the technology is not useful for all final goods producers. Technology licensing reduces welfare if cost reduction by the licensed t...

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Bibliographic Details
Published in:Economic theory bulletin 2024-06, Vol.12 (1), p.17-24
Main Authors: Mukherjee, Arijit, Sinha, Uday Bhanu
Format: Article
Language:English
Subjects:
Competition
Cost reduction
Differentiation
Economic theory
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Game Theory
Innovations
Licensing
Macroeconomics/Monetary Economics//Financial Economics
Product differentiation
Public Finance
Research Article
Social and Behav. Sciences
Technology
Welfare
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Summary:It is commonly believed that licensing of cost reducing technology increases welfare. We show that technology licensing by an outside innovator may reduce welfare when the technology is not useful for all final goods producers. Technology licensing reduces welfare if cost reduction by the licensed technology is small and the initial cost difference of the final goods producers is large. A higher intensity of competition, either due to lower product differentiation or due to Bertrand competition instead of Cournot competition, increases the possibility of welfare reducing licensing.
ISSN:2196-1085
2196-1093
DOI:10.1007/s40505-023-00259-1