Licensing in a Vertically Separated Industry
University of Nottingham Economics Discussion Paper No. 03/01
25 Pages Posted: 26 Jun 2003
Date Written: March 2003
Abstract
The literature on technology licensing has ignored the importance of market power of the input supplier. In this paper we examine the incentive for licensing in the downstream industry when the firms in the upstream industry have market power. We show that licensing in the downstream industry is profitable if and only if licensing increases competition in the upstream industry. We also find that a monopolist in the final goods market has the incentive for licensing if licensing changes the market structure of the upstream industry. Thus, our analysis provides a rationale for 'second sourcing'.
Keywords: Entry, Licensing, Downstream industry, Upstream industry
JEL Classification: D43, L13, O34
Suggested Citation: Suggested Citation
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