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Technology licensing, R&D and welfare

Ray-Yun Chang, Hong Hwang and Cheng-Hau Peng ()

Economics Letters, 2013, vol. 118, issue 2, 396-399

Abstract: This paper sets up a three-stage (R&D, technology licensing, and output) oligopoly game in which only one of the firms undertakes a cost-reducing R&D and may license the developed technology to the others by means of a two-part tariff (i.e., a per-unit royalty and an upfront fee) contract. It is found with surprise that if the licensor firm’s R&D efficiency is high, the availability of licensing subdues the firm’s R&D incentive, leading to a lower social welfare level. This result implies that a government has to be cautious when encouraging technology licensing among firms.

Keywords: Technology licensing; R&D investment; Social welfare (search for similar items in EconPapers)
JEL-codes: D21 L13 L24 O31 (search for similar items in EconPapers)
Date: 2013
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Handle: RePEc:eee:ecolet:v:118:y:2013:i:2:p:396-399