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Fee vs. Royalty Licensing and Consumers’ Welfare

Tarun Kabiraj ()
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Tarun Kabiraj: Indian Statistical Institute

Journal of Quantitative Economics, 2018, vol. 16, issue 3, 749-767

Abstract: Abstract In a duopolistic trade model we have shown that a tariff can influence the optimal licensing strategy of the foreign firm. A high tariff will induce fee licensing and a low tariff will result in a royalty licensing. From the viewpoint of the consumers both high tariff and high royalty are distortionary; hence there is a trade-off between a tariff and a royalty. Assuming consumers’ welfare maximization as an objective of the government, we show that royalty licensing is induced if the cost saving under foreign technology is small; otherwise fee licensing is induced by an appropriate choice of tariffs.

Keywords: Tariffs; Fee licensing; Royalty licensing; Consumers’ welfare (search for similar items in EconPapers)
JEL-codes: D43 F13 L13 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:spr:jqecon:v:16:y:2018:i:3:d:10.1007_s40953-017-0111-6