Template-type: ReDIF-Paper 1.0
Author-Name: Cugno Franco
Author-Email: franco.cugno@unito.it
Author-Name: Ottoz Elisabetta 
Author-Email: elisabetta.ottoz@unito.it
Author-Workplace-Name: University of Turin
Author-Workplace-Homepage: http://www.est.unito.it/
Title: Static Inefficiency of Compulsory Licensing: Quantity vs. Price Competition
Abstract: A common argument against compulsory licensing of intellectual property maintains that it facilitates 
the entry of inefficient producers, which may reduce social welfare independently of any effects on R&D incentives.
We study the issue in a model where the innovative firm, under the threat of compulsory licensing, react strategically 
by choosing between quantity and price competition. We show that the risk of a reduction in static welfare due to 
the entry of highly inefficient firms is avoided if licensing entails a royalty per unit of output and zero fixed 
fee. The rationale behind this result lies in the fact that compulsory licensing threat works as a disciplining 
device to improve static social welfare, even when the applicant is a high cost inefficient firm.
Length: 18 pages
Creation-Date: 2006-06
File-URL: http://www.est.unito.it/do/home.pl/Download?doc=/allegati/wp2006dip/6_wp_cugnoottoz.pdf
File-Format: Application/PDF
Handle: RePEc:uto:dipeco:200606