The welfare effect of bargaining power in the licensing of a cost-reducing technology

Shin Kishimoto ()
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Shin Kishimoto: Chiba University

Journal of Economics, 2020, vol. 129, issue 2, No 3, 173-193

Abstract: Abstract This study considers licensing of a cost-reducing technology through bargaining between a technology-holding firm and its rival firm in a Cournot duopoly market. To consider the relative bargaining power of both firms, the asymmetric Nash bargaining solution is applied as our solution. Then, we specify the combinations of lump-sum fee and per-unit royalty that are realized through bargaining, and examine the effect on social welfare of the technology-holding firm’s bargaining power. The principal findings are as follows. Regardless of the technology-holding firm’s bargaining power, pure royalty licensing is carried out, and social welfare is non-increasing in its bargaining power. In our model, licensing through a take-it-or-leave-it offer, which is often assumed in the literature, is regarded as the case in which the technology-holding firm has full bargaining power. Thus, the result on social welfare implies that the take-it-or-leave-it offer licensing mechanism leads to the socially worst outcome.

Keywords: Licensing; Cost-reducing technology; Asymmetric Nash bargaining solution; Bargaining power; Social welfare (search for similar items in EconPapers)
JEL-codes: C78 D43 L24 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:129:y:2020:i:2:d:10.1007_s00712-019-00672-w

DOI: 10.1007/s00712-019-00672-w

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