Technology licensing under product differentiation

Neelanjan Sen, Saumya Kaul () and Rajit Biswas ()
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Saumya Kaul: Madras School of Economics
Rajit Biswas: Centre For Development Studies

Journal of Economics, 2021, vol. 134, issue 3, No 2, 219-260

Abstract: Abstract This paper discusses the licensing of technology between rival firms in a Cournot duopoly with horizontal and vertical product differentiation. The firms produce products of different qualities (high and low) and incur different costs per unit of output produced. It is shown that technology is transferred from the firm that produces the higher quality product to the firm that produces the lower quality product via a fixed-fee if the quality difference (net of cost) and the horizontal differentiation between the two products are relatively low. Technology is transferred through royalty, for any level of quality difference (net of cost), if the horizontal differentiation between the products is relatively low. A similar result is observed for two-part tariff licensing and quota licensing, which is a combination of output quota set by the licensor coupled with a fixed-fee. It is also shown that the optimal form of contract is either two-part tariff licensing or quota licensing. Technology is never licensed from the firm that produces a lower quality product to its rival that produces a higher quality product. However, the cross-licensing of technology is sometimes possible. After licensing welfare always increases.

Keywords: Technology licensing; Oligopoly; Product differentiation; Cournot (search for similar items in EconPapers)
JEL-codes: D L (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:134:y:2021:i:3:d:10.1007_s00712-021-00750-y

DOI: 10.1007/s00712-021-00750-y

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