Vertical Licensing, Input Pricing, and Entry

35 Pages Posted: 21 Feb 2017  

Elpiniki Bakaouka

Athens University for Economics and Business

Chrysovalantou Milliou

Athens University of Economics and Business

Date Written: January 2017

Abstract

We explore the incentives of a vertically integrated incumbent firm to license the production technology of its core input to an external firm, transforming the licensee into its input supplier. We find that the incumbent opts for licensing even when licensing also transforms the licensee into one of its direct competitors in the final products market. In fact, the licensee's entry into the final products market, although increases the competition and the cost that the licensor faces, it reinforces, instead of weakens, the licensing incentives. Furthermore, the licensee's entry augments the positive welfare implications of vertical licensing.

Keywords: licensing, vertical relations, entry, two-part tariffs, outsourcing

JEL Classification: L220, L240, L130, L420, D450

Suggested Citation

Bakaouka, Elpiniki and Milliou, Chrysovalantou, Vertical Licensing, Input Pricing, and Entry (January 2017). CESifo Working Paper Series No. 6316. Available at SSRN: https://ssrn.com/abstract=2921061

Elpiniki Bakaouka

Athens University for Economics and Business ( email )

Therianou 2 and Katsandoni
Pedion Areos
Athens, 11473
Greece

Chrysovalantou Milliou (Contact Author)

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

Paper statistics

Downloads
36
Abstract Views
161