Trade and technology transfer in a vertically differentiated industry

Banerjee, Dyuti S.; Marjit, Sugata

doi:10.1007/s00712-009-0073-z

Cited by 2 publications

(1 citation statement)

References 8 publications

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“…It is assumed that F1 holds patents for superior innovations on product quality. If F1 has an incentive to licence its technology, it will make a 'take-it-or-leave-it' offer based on a fixed-fee, a royalty rate, or at a constant marginal cost in quality (see, e.g., Baake & Boom, 2001;Tanaka, 2001;Avenel & Caprice, 2006;Banerjee & Margit, 2009;Bergantino et al, 2011;Zou & Chen, 2019). Second, firms produce with a fixed quality cost or zero cost (see, e.g., Bacchiega, Gabszewicz, & Tarola, 2007;Liao, 2008;Li & Song, 2009;Li & Wang, 2010;Inderst & Tirosh, 2015).…”

Section: Technology Licencingmentioning

confidence: 99%

Technology licensing or cost‐reducing outsourcing? Game theoretical analysis on consumers' home bias effects and firms' optimal strategies

Chen

Huang

2020

Bulletin of Econ Res

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International cost-reducing outsourcing lowers consumers' perceived quality of products due to home bias. This paper envisages a vertically differentiated Cournot duopoly associated with international, cost-reducing outsourcing and non-outsourcing schemes in both licensing and nonlicensing cases. It examines the impacts of home bias effect on the behaviour of firms and welfare. It shows that the optimal strategy of the patent holder varies from situation to situation associated with the home bias effect. In equilibrium, the dominant strategy for the patent holder is licencing and no outsourcing. If a licensee will outsource its inputs after upgrading the quality of its products, then the patent holder will earn higher profits than one in a case where the licensee does not outsource. If both the patent holder and the licensee produce without outsourcing, a welfarereducing licensing occurs. On the other hand, if the licensee outsources its production inputs but the patent holder does not outsource, then a welfare-improving licensing generates a win-win situation for the patent holder and for society. Furthermore, the smaller the quality gap between two goods prior to implementing licensing, the lower the royalty rate imposed by the patent holder.

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