Signaling in Technology Licensing with a Downstream Oligopoly

Cheng-Tai Wu (), Cheng-Hau Peng () and Tsung-Sheng Tsai ()
Additional contact information
Cheng-Tai Wu: Fu Jen Catholic University

Review of Industrial Organization, 2021, vol. 58, issue 4, No 3, 559 pages

Abstract: Abstract We analyze licensing contracts in an oligopolistic downstream market where an outside innovator has private information with regard to its technology. Under complete information, the innovator uses a fee-only or a two-part contract to extract the rent that is generated from its innovation, so that all of the downstream firms receive nothing but their reservation payoff. By contrast, under incomplete information with respect to the efficiency of innovation, there can be a conflict between signaling and rent extracting: A contract by the efficient innovator that extracts too much rent invites the inefficient innovator to mimic it. In this case, the efficient type may give up charging the fixed fee and offer a royalty-only contract, so as to discourage the mimicking. Moreover, when the downstream market is sufficiently competitive, the royalty-only contract will eventually win vis-a-vis the two-part contract because it is more effective for the efficient type to signal itself.

Keywords: Signaling; Technology licensing; Downstream oligopoly (search for similar items in EconPapers)
JEL-codes: D43 D45 D82 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s11151-020-09788-6 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:revind:v:58:y:2021:i:4:d:10.1007_s11151-020-09788-6

Ordering information: This journal article can be ordered from
http://www.springer. ... on/journal/11151/PS2

DOI: 10.1007/s11151-020-09788-6

Access Statistics for this article

Review of Industrial Organization is currently edited by L.J. White

More articles in Review of Industrial Organization from Springer, The Industrial Organization Society Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().