Essays on licensing

This thesis contains the result of research undertaken at the School of Economics of the University of New South Wales between July 2010 and March 2013. It is a collection of four theoretical papers.Chapter 1 discusses the optimal public policy towards two-part tariff licensing under the assumption that the government intervenes in licensing by setting an upper limit on the royalty level. Compared to the traditional constraint on licensing, the new derived licensing policy brings two kinds of welfare improvements. First, when licensing is welfare-reducing the new policy can prevent it from happening. Second, when licensing is potentially welfare-improving the new policy can take full advantage of its benefits.Chapter 2 compares two commonly observed licensing forms, profit-sharing licensing and per-unit royalty licensing. In a duopoly with symmetric product differentiation, it proves that profit-sharing licensing and per-unit royalty licensing are equivalent to each other regarding both the profitability and the welfare influences.Chapter 3 analyzes unilateral partial ownership arrangement and technology licensing between asymmetric competitors. It is found that the equilibrium output allocation under licensing is inefficient, the introduction of partial ownership arrangement can improve it and under some conditions the improvement in allocation efficiency can raise both industry profit and social welfare. This conclusion explains the concurrence of licensing and equity purchases in business practice and gives a policy-wise justification for partial integration conducted for the purpose of future technology transfer.By introducing two-part tariff licensing, Chapter 4 reconsiders the relative dominance of the price-setting strategy and the quantity-setting strategy in an asymmetric duopoly setting. It shows that if the initial cost difference is small or the goods are close substitutes firms will both prefer the quantity strategy, whereas for the other cases a heterogeneous strategy equilibrium will appear, under which the advanced firm chooses the price strategy and the backward firm chooses the quantity strategy. With endogenous mode of market competition, licensing is always welfare-improving.Some of the material is adapted from previously published or accepted articles in the following journals, The Manchester School (2013) for Chapter 1 and Economic Modelling (2013) for Chapter 2