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Department of Economics, Norwegian School of Economics (NHH) Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)

No 5/2015:
Licensing and Innovation with Imperfect Contract Enforcement.

Richard Gilbert () and Eirik Gaard Kristiansen ()

Abstract: Licensing promotes technology transfer and innovation, but enforcement of licensing contracts is often imperfect. We explore the implications of weak enforcement of contractual commitments on the licensing conduct of firms and market performance. An upstream firm develops a technology that it can license to downstream firms using a fixed fee and a per-unit royalty. Strictly positive per-unit royalties maximize the licensorís profit if competition among licensees limits joint profits. Although imperfect contract enforcement lowers the profits of the upstream firm, weak enforcement lowers prices, increases downstream innovation, and in some circumstances can increase total economic welfare. 

Keywords: Licensing; competition; innovation; imperfect contract enforcement.; (follow links to similar papers)

JEL-Codes: D43; K42; L13; L14; (follow links to similar papers)

26 pages, March 26, 2015

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