Tariff induced licensing contracts, consumers’ surplus and welfare

Article Type

Research Article

Publication Title

Economic Modelling

Abstract

We construct a duopolistic trade model with technology transfer and consider two-part tariff licensing contracts. We show that a tariff on foreign products can influence the licensing strategy of the foreign firm. There is a trade-off between a tariff and a royalty license in affecting the product price. We show in particular that a tariff can be chosen so as to induce fee licensing and maximize both consumers’ surplus and domestic welfare. This resolves the so-called conflict between these two objectives in respect of the choice of a tariff. The paper provides a number of testable hypothesis.

First Page

439

Last Page

447

DOI

10.1016/j.econmod.2016.11.001

Publication Date

1-1-2017

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