Welfare reducing vertical licensing in the presence of complementary inputs

Yen-Ju Lin, Yan-Shu Lin and Pei-Cyuan Shih ()
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Yen-Ju Lin: Ming Chuan University
Yan-Shu Lin: Ming Chuan University
Pei-Cyuan Shih: Ming Chuan University

Journal of Economics, 2022, vol. 137, issue 2, No 2, 143 pages

Abstract: Abstract This research explores the welfare implications of vertical licensing when the final goods are produced by multiple complementary inputs. We spotlight the importance of two-part tariff input terms when there is a buyer–seller relationship after vertical licensing, which has different welfare ramifications depending on the product differentiation. When the products are less differentiated, our result shows welfare improving licensing, but when the products are more differentiated, the wholesale price is set above the supplier’s marginal cost through licensing, leading to the problem of double marginalization and reducing welfare. This study offers various policy implications, which go up against conventional wisdom that welfare improving licensing may not be attainable by considering multiple complementary inputs.

Keywords: Vertical licensing; Two-part tariffs; Input pricing; Complementary inputs; Vertically-related market; Social welfare (search for similar items in EconPapers)
JEL-codes: D45 L13 L22 L24 L42 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:137:y:2022:i:2:d:10.1007_s00712-022-00782-y

DOI: 10.1007/s00712-022-00782-y

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