American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Bargaining over Entry with a Compulsory License Deadline: Price Spillovers and Surplus Expansion
American Economic Journal: Microeconomics
vol. 9,
no. 1, February 2017
(pp. 31–62)
Abstract
We analyze bargaining between a developing country (South) and a multinational firm over the local price of its patented product. We use an alternating offers bargaining game in which the South can resort to compulsory licensing (CL) if the two parties fail to reach agreement by a certain deadline. The presence of international price spillovers introduces two novel features into the standard bargaining problem: the surplus from entry prior to the CL deadline may be negative, and CL can yield higher surplus than entry. We establish conditions under which equilibrium may exhibit immediate entry, preemptive entry just prior to the CL deadline, or the occurrence of CL. The South necessarily gains from the threat of CL if the joint payoff under entry is higher relative to CL but can lose if it is lower.Citation
Bond, Eric W., and Kamal Saggi. 2017. "Bargaining over Entry with a Compulsory License Deadline: Price Spillovers and Surplus Expansion." American Economic Journal: Microeconomics, 9 (1): 31–62. DOI: 10.1257/mic.20150031Additional Materials
JEL Classification
- D45 Rationing; Licensing
- F11 Neoclassical Models of Trade
- F23 Multinational Firms; International Business
- L24 Contracting Out; Joint Ventures; Technology Licensing
- L65 Chemicals; Plastics; Rubber; Drugs; Biotechnology
- O34 Intellectual Property and Intellectual Capital
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