TECHNOLOGY TRANSFER IN A STACKELBERG STRUCTURE: LICENSING CONTRACTS AND WELFARE

Tarun Kabiraj

Manchester School, 2005, vol. 73, issue 1, 1-28

Abstract: We study the question of optimal licensing contracts in a leadership structure and discuss the welfare implications. We assume that the size of the innovation is exogenous and the patent holder is a competitor in the product market. Then welfare depends on the types of contracts available and on the ownership of patents. In particular, we examine whether a leader's innovation is considered to be socially more valuable than a follower's innovation. We show that there are situations when a follower's innovation generates larger welfare. Given the private incentives for innovation, a licensing policy may induce the desired firm to win the patent race.

Date: 2005
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