Welfare reducing licensing by an outside innovator

Mukherjee, Arijit; Sinha, Uday Bhanu

Abstract

It is commonly believed that licensing of cost reducing technology increases welfare. We show that technology licensing by an outside innovator may reduce welfare when the technology is not useful for all final goods producers. Technology licensing reduces welfare if cost reduction by the licensed technology is small and the initial cost difference of the final goods producers is large. A higher intensity of competition, either due to lower product differentiation or due to Bertrand competition instead of Cournot competition, increases the possibility of welfare reducing licensing.

Citation

Mukherjee, A., & Sinha, U. B. (2024). Welfare reducing licensing by an outside innovator. Economic Theory Bulletin, 12, 17-24. https://doi.org/10.1007/s40505-023-00259-1

• Journal Article Type: Article
• Acceptance Date: Oct 27, 2023
• Online Publication Date: Jan 6, 2024
• Publication Date: 2024-06
• Deposit Date: Nov 13, 2023
• Publicly Available Date: Nov 13, 2023
• Journal: Economic Theory Bulletin
• Electronic ISSN: 2196-1093
• Publisher: Springer Verlag
• Peer Reviewed: Peer Reviewed
• Volume: 12
• Pages: 17-24
• DOI: https://doi.org/10.1007/s40505-023-00259-1
• Keywords: Auction; Fixed-fee; Outside innovator; Technology licensing; Welfare
• Public URL: https://nottingham-repository.worktribe.com/output/27368225
• Publisher URL: https://link.springer.com/article/10.1007/s40505-023-00259-1
• Additional Information: Tags: Industry, Innovation and Infrastructure