PROCESS INNOVATION AND LICENSING

Luigi FILIPPINI (Università Cattolica)

We consider technology transfer from a leader, that has the most productive technology, to a follower under licensing by means of a fixed fee and a royalty. It is shown that the royalty rate exceeds the differences in costs.

Under royalty licensing the leader commits to utilize the most productive technology, but we prove that the leader has an incentive to utilize the less productive technology and transfers the most productive one. These results do not hold in the Cournot case.

Then we consider a monopolist that has no competitors, creates one intentionally and licenses a firm (a follower) able to produce goods by a cost-reducing technology; this case is dual to the above examined.

Finally, we analyze procurement and it dominates licensing when output is not contractible.