Better technology may be sold for a lower fee: The ad valorem tariff and licensing contract

Tomomichi Mizuno, Kazuhiro Takauchi and Takeshi Iida
Additional contact information
Takeshi Iida: Graduate School of Economics, Kobe University

No 1109, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: The main purpose of this study is to investigate how a relationship arises between an ad valorem tariff and licensed technology in a licensing contract. To this end, we study a two-country, two-firm duopolistic trade model. We consider a product market in which a high-tech foreign firm can license its production technology to an importing country. The government of the importing country chooses an ad valorem tariff rate but has no commitment power. In our model, the home government raises the tariff rate as the licensed technology improves. Our two main results in the case that a highly productive technology is licensed are paradoxical: First, better technology is sold for a lower fee in a licensing contract. Second, the profits of both the licenser and licensee decrease as the licensed technology improves. In other words, cost reduction reduces the profits of both the licenser and licensee. These findings indicate that because of the role played by the ad valorem tariff, technology licensing does not always benefit both the licensee and the licenser.

Keywords: Licensing contract; Ad valorem tariff; Fixed fee (search for similar items in EconPapers)
JEL-codes: D43 F13 L13 (search for similar items in EconPapers)
Pages: 15pages
Date: 2011-07
New Economics Papers: this item is included in nep-ipr, nep-pr~ and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2011/1109.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.econ.kobe-u.ac.jp:443 (certificate verify failed) (http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2011/1109.pdf [301 Moved Permanently]--> https://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2011/1109.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:koe:wpaper:1109

Access Statistics for this paper

More papers in Discussion Papers from Graduate School of Economics, Kobe University Contact information at EDIRC.
Bibliographic data for series maintained by Kimiaki Shirahama ( this e-mail address is bad, please contact ).