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Vertical Licensing, Input Pricing, and Entry

Elpiniki Bakaouka and Chrysovalantou Milliou ()

No 1605, DEOS Working Papers from Athens University of Economics and Business

Abstract: We explore the incentives of a vertically integrated incumbent firm to license the production technology of its core input to an external firm. We find that it opts for licensing even when licensing induces the entry of the licensee in the final goods market. In fact, although the entry of the licensee reduces the licensor's efficiency and the competition that it faces, it reinforces, instead of weakens, the licensing incentives. Vertical licensing is always welfare-enhancing and it is even more welfare-enhancing when it triggers entry.

Keywords: licensing; vertical relations; entry; two-part tariffs; outsourcing (search for similar items in EconPapers)
JEL-codes: L22 L24 L13 L42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-ind
Date: 2016-12-22
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