Static inefficiency of compulsory licensing: quantity vs. price competition

Franco Cugno () and Elisabetta Ottoz

Department of Economics Working Papers from University of Turin

Abstract: A common argument against compulsory licensing of intellectual property maintains that it facilitates the entry of inefficient producers, which may reduce social welfare independently of any effects on R&D incentives. We study the issue in a model where the innovative firm, under the threat of compulsory licensing, react strategically by choosing between quantity and price competition. We show that the risk of a reduction in static welfare due to the entry of highly inefficient firms is avoided if licensing entails a royalty per unit of output and zero fixed fee. The rationale behind this result lies in the fact that compulsory licensing threat works as a disciplining device to improve static social welfare, even when the applicant is a high cost inefficient firm.

New Economics Papers: this item is included in nep-com, nep-ipr and nep-mic
Date: Written 2006-06
View list of references

Downloads: (external link)
http://www.de.unito.it/web/member/segreteria/WP/2006/6_WP_CugnoOttoz.pdf (application/pdf)

Related works:
Working Paper: Static inefficiency of compulsory licensing: Quantity vs. price competition (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in Department of Economics Working Papers from University of Turin
Contact information at EDIRC.
Series data maintained by Carlo Lucchesi ().