Licensing in a Vertically Separated Industry

University of Nottingham Economics Discussion Paper No. 03/01

25 Pages Posted: 26 Jun 2003

See all articles by Arijit Mukherjee

Arijit Mukherjee

University of Nottingham - School of Economics

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

Mukherjee, Arijit, Licensing in a Vertically Separated Industry (March 2003). University of Nottingham Economics Discussion Paper No. 03/01, Available at SSRN: https://ssrn.com/abstract=401502 or http://dx.doi.org/10.2139/ssrn.401502

Arijit Mukherjee (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
+44 115 9514733 (Phone)
+44 115 9514159 (Fax)

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