Decreasing returns, patent licensing and price-reducing taxes

Debapriya Sen and Giorgos Stamatopoulos ()

MPRA Paper from University Library of Munich, Germany

Abstract: Patent licensing agreements among competing firms usually involve royalties which are often considered to be anticompetitive as they raise market prices. In this paper we propose simple tax policies than can alleviate the effect of royalties. Considering a Cournot duopoly where firms produce under decreasing returns and trade a patented technology, we show that the interaction of royalties with decreasing returns may generate the counter-intuitive result that market prices decrease in the magnitude of diseconomies of scale. In such cases there exist progressive quantity taxes on firms that weaken the effect of royalties and lower the market prices. These taxes collect sufficient revenue to compensate firms for their losses. As a result, it is possible to design deficit neutral tax-transfer schemes that strictly Pareto improve the welfare of consumers as well as firms.

Keywords: Decreasing returns; patent licensing; royalty; progressive quantity tax; deficit neutrality (search for similar items in EconPapers)
JEL-codes: D43 D45 H21 L24 (search for similar items in EconPapers)
Date: 2013-04-16
New Economics Papers: this item is included in nep-com, nep-ino, nep-ipr, nep-pr~ and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://mpra.ub.uni-muenchen.de/46246/1/MPRA_paper_46246.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/90247/1/MPRA_paper_90247.pdf revised version (application/pdf)

Related works:
Journal Article: Decreasing Returns, Patent Licensing, and Price-Reducing Taxes (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:46246

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