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Tariff induced licensing contracts, consumers’ surplus and welfare

Abhishek Kabiraj and Tarun Kabiraj

Economic Modelling, 2017, vol. 60, issue C, 439-447

Abstract: We construct a duopolistic trade model with technology transfer and consider two-part tariff licensing contracts. We show that a tariff on foreign products can influence the licensing strategy of the foreign firm. There is a trade-off between a tariff and a royalty license in affecting the product price. We show in particular that a tariff can be chosen so as to induce fee licensing and maximize both consumers’ surplus and domestic welfare. This resolves the so-called conflict between these two objectives in respect of the choice of a tariff. The paper provides a number of testable hypothesis.

Keywords: Two-part tariff contracts; Fee licensing; Royalty licensing; Consumers’ surplus; Welfare; Tariff protection (search for similar items in EconPapers)
JEL-codes: D43 F13 L13 (search for similar items in EconPapers)
Date: 2017
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