Licensing and Innovation with Imperfect Contract Enforcement

Richard Gilbert and Eirik Kristiansen

No 5/2015, Discussion Paper Series in Economics from Norwegian School of Economics, Department of Economics

Abstract: Licensing promotes technology transfer and innovation, but enforcement of licensing contracts is often imperfect. We explore the implications of weak enforcement of contractual commitments on the licensing conduct of firms and market performance. An upstream firm develops a technology that it can license to downstream firms using a fixed fee and a per-unit royalty. Strictly positive per-unit royalties maximize the licensor’s profit if competition among licensees limits joint profits. Although imperfect contract enforcement lowers the profits of the upstream firm, weak enforcement lowers prices, increases downstream innovation, and in some circumstances can increase total economic welfare.

Keywords: Licensing; competition; innovation; imperfect contract enforcement. (search for similar items in EconPapers)
JEL-codes: D43 K42 L13 L14 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2015-03-26
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Journal Article: Licensing and innovation with imperfect contract enforcement (2018)
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