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Bargaining over Entry with a Compulsory License Deadline: Price Spillovers and Surplus Expansion

Eric Bond () and Kamal Saggi ()

American Economic Journal: Microeconomics, 2017, vol. 9, issue 1, 31-62

Abstract: We analyze bargaining between a developing country (South) and a multinational firm over the local price of its patented product. We use an alternating offers bargaining game in which the South can resort to compulsory licensing (CL) if the two parties fail to reach agreement by a certain deadline. The presence of international price spillovers introduces two novel features into the standard bargaining problem: the surplus from entry prior to the CL deadline may be negative, and CL can yield higher surplus than entry. We establish conditions under which equilibrium may exhibit immediate entry, preemptive entry just prior to the CL deadline, or the occurrence of CL. The South necessarily gains from the threat of CL if the joint payoff under entry is higher relative to CL but can lose if it is lower.

JEL-codes: D45 F11 F23 L24 L65 O34 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/mic.20150031
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Working Paper: Bargaining over entry with a compulsory license deadline: Price spillovers and surplus expansion (2016) Downloads
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