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Vertical Licensing, Input Pricing, and Entry

Author

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  • Elpiniki Bakaouka
  • Chrysovalantou Milliou
Abstract
We explore the incentives of a vertically integrated incumbent firm to license the production technology of its core input to an external firm. We find that it opts for licensing even when licensing induces the entry of the licensee in the final goods market. In fact, although the entry of the licensee reduces the licensor's efficiency and the competition that it faces, it reinforces, instead of weakens, the licensing incentives. Vertical licensing is always welfare-enhancing and it is even more welfare-enhancing when it triggers entry.

Suggested Citation

  • Elpiniki Bakaouka & Chrysovalantou Milliou, 2016. "Vertical Licensing, Input Pricing, and Entry," DEOS Working Papers 1605, Athens University of Economics and Business.
    • Handle: RePEc:aue:wpaper:1605
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    Cited by:

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    2. Wen-Jung Liang & Yi-Jie Wang, 2019. "Location, Price, And Welfare In The Oligopoly With One Online Firm," Economy & Business Journal, International Scientific Publications, Bulgaria, vol. 13(1), pages 148-160.
    3. Chrysovalantou Milliou, 2023. "Outsourcing without Cost Advantages," CESifo Working Paper Series 10645, CESifo.
    4. Yen-Ju Lin & Yan-Shu Lin & Pei-Cyuan Shih, 2022. "Welfare reducing vertical licensing in the presence of complementary inputs," Journal of Economics, Springer, vol. 137(2), pages 121-143, October.
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    6. Chrysovalantou Milliou & Apostolis Pavlou, 2020. "Foreign direct investment in vertically related markets," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(1), pages 284-320, February.
    7. Kittaka, Yuta & Pan, Cong, 2023. "The bright side of outside market entry with manufacturer encroachment," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 180(C).
    8. Pei-Cyuan Shih & Tsung-Han Chou & Hong Hwang & Yan-Shu Lin, 2024. "Technology Licensing under Successive Monopoly," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(3), pages 327-340, May.
    9. Ku-Chu Tsao & Jin-Li Hu & Hong Hwang & Yan-Shu Lin, 2023. "More licensed technologies may make it worse: a welfare analysis of licensing vertically two-tier foreign technologies," Journal of Economics, Springer, vol. 139(1), pages 71-88, June.
    10. Negoro, Kazuhiro & Matsubayashi, Nobuo, 2021. "Game-theoretic analysis of partner selection strategies for market entry in global supply chains," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 151(C).

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    More about this item

    Keywords

    licensing; vertical relations; entry; two-part tariffs; outsourcing;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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