nep-tid 2011-08-02 papers

on Technology and Industrial Dynamics

Issue of 2011‒08‒02
two papers chosen by
Rui Baptista
Technical University of Lisbon

Better technology may be sold for a lower fee: The ad valorem tariff and licensing contract By Tomomichi Mizuno; Kazuhiro Takauchi; Takeshi Iida
International Sourcing, Product Complexity and Intellectual Property Rights By A. Naghavi; J. Spies; F. Toubal

Better technology may be sold for a lower fee: The ad valorem tariff and licensing contract

By:	Tomomichi Mizuno (Department of Economics, University of Nagasaki); Kazuhiro Takauchi (Department of Economics, Management and Information Science); Takeshi Iida (Graduate School of Economics, Kobe University)
Abstract:	The main purpose of this study is to investigate how a relationship arises between an ad valorem tariff and licensed technology in a licensing contract. To this end, we study a two-country, two-firm duopolistic trade model. We consider a product market in which a high-tech foreign firm can license its production technology to an importing country. The government of the importing country chooses an ad valorem tariff rate but has no commitment power. In our model, the home government raises the tariff rate as the licensed technology improves. Our two main results in the case that a highly productive technology is licensed are paradoxical: First, better technology is sold for a lower fee in a licensing contract. Second, the profits of both the licenser and licensee decrease as the licensed technology improves. In other words, cost reduction reduces the profits of both the licenser and licensee. These findings indicate that because of the role played by the ad valorem tariff, technology licensing does not always benefit both the licensee and the licenser.
Keywords:	Licensing contract, Ad valorem tariff, Fixed fee
JEL:	D43 F13 L13
Date:	2011–07
URL:	http://d.repec.org/n?u=RePEc:koe:wpaper:1109&r=tid

International Sourcing, Product Complexity and Intellectual Property Rights

By:	A. Naghavi; J. Spies; F. Toubal
Abstract:	In this paper, we propose the technological complexity of a product and the level of Intellectual Property Rights (IPRs) protection to be the co-determinants of the mode through which multinational firms purchase their goods. We study the choice between intra-firm trade and outsourcing given heterogeneity at the product- (complexity), firm- (productivity) and country- (IPRs) level. Our findings suggest that the above three dimensions of heterogeneity are crucial for complex goods, where firms face a trade-off between higher marginal costs in the case of trade with an affiliate and higher imitation risks in the case of sourcing from an independent supplier. We test these predictions by combining data from a French firm-level survey on the mode choice for each transaction with a newly developed complexity measure at the product-level. Our fractional logit estimations confirm the proposition that although firms are generally reluctant to source highly complex goods from outside the firm’s boundaries, they do so when a strong IPR regime in the host country guarantees the protection of their technology.
JEL:	F12 F23 O34
Date:	2011–07
URL:	http://d.repec.org/n?u=RePEc:bol:bodewp:wp773&r=tid

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