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Optimal Licensing Policy in Differentiated Industries *
Author(s) -
ERKAL NISVAN
Publication year - 2005
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2005.00216.x
Subject(s) - product differentiation , tariff , product (mathematics) , industrial organization , microeconomics , product innovation , economics , limit (mathematics) , business , zero (linguistics) , transfer (computing) , commerce , international trade , cournot competition , computer science , mathematics , mathematical analysis , linguistics , philosophy , geometry , parallel computing
This paper analyses the policy implications of licensing between producers of differentiated goods. We consider and compare two‐part tariff, fixed fee royalty and collusive licensing contracts. Under the optimal licensing policy, there will be no technology transfers if the innovation size is sufficiently small and degree of product differentiation is sufficiently low. Licensing deals that involve drastic innovations are always socially desirable. In the limit, as product differentiation converges to zero, it becomes socially desirable to transfer drastic innovations only. The range of innovation sizes that is socially optimal to transfer increases as product differentiation increases.