Joel Sandonís

Welfare reducing licensing

In this paper, we characterize situations where licensing an innovation to a rival firm using two-part tariff contracts (a fixed fee plus a linear per unit of output royalty) reduces social welfare. We show that it occurs if and only if i) the goods are close enough substitutes, ii) the innovation is large enough but not drastic and iii) the firms compete in prices. Moreover, we show that, regardless of the type of competition, first, the optimal contract always includes a positive royalty and, second, even drastic innovations are licensed whenever the goods are not homogeneous.

To Merge or to License: Implications for Competition Policy

The optimal competition policy when licensing is an alternative to a merger, which has the intention of transferring a superior technology, and is derived in a differentiated goods duopoly, as in the cases of Cournot and Bertrand competition. We show that whenever both royalties and fixed fees are feasible, mergers should not be allowed, which fits the prescription of the US Horizontal Merger Guidelines. In contrast, when only one instrument is feasible, be it fixed fees or royalties, the possibility of licensing cannot be used as a definitive argument against mergers.

Research joint ventures vs. cross licensing agreements: an agency approach

Abstract In this paper two broad categories of organizing a cooperative R&D project are compared: a Research Joint Venture (RJV) and a Cross Licensing Agreement (CLA). In a non-deterministic R&D setting including asymmetric information, we show that an RJV is more efficient in providing incentives, it allows to capture existing synergies and facilitates the dissemination of the partners’ know-how, which is socially desirable. However, contrary to a CLA, an RJV faces the risk of opportunistic behavior by the partners regarding the provision of their know-how to the venture, which could lead a CLA to perform more efficiently and, in some cases, this organization turns out to be superior.

Optimal two-part tariff licensing contracts with differentiated goods and endogenous R&D

In this paper we get the optimal two-part tariff contract for the licensing of a cost reducing innovation to a differentiated goods industry of a general size. We analyze the cases where the patentee is an independent laboratory or an incumbent firm. We show that, regardless of the number of firms, the degree of product differentiation and the type of patentee, the innovation is licensed to all firms. Moreover, we endogenize R&D investment and get that an internal patentee invests more (less) in R&D when the technological opportunity is low (high). In this paper we get the optimal two-part tariff contract for the licensing of a cost reducing innovation to a differentiated goods industry of a general size. We analyze the cases where the patentee is an independent laboratory or an incumbent firm. We show that, regardless of the number of firms, the degree of product differentiation and the type of patentee, the innovation is licensed to all firms. Moreover, we endogenize R&D investment and get that an internal patentee invests more (less) in R&D when the technological opportunity is low (high).

A model of advertising with application to the German automobile industry

This paper develops a dynamic duopolistic model of advertising and price competition. Advertising accumulates a stock of goodwill which enters directly into the demand functions and both the cooperative and predatory effects of advertising are considered. It is shown that firms invest more in advertising the higher the degree of cooperativeness of advertising and some comparative static results are provided. In the second, empirical part of the article, estimations of the demand equations are presented using data from the German automobile industry. The main conclusion drawn is that advertising plays an important role in this market and has a predatory nature.

The effectiveness of R&D subsidies

In this paper, the effectiveness of R&D subsidies is analyzed in an oligopolistic model that we apply to the cases of international R&D competition and cooperation. We find that the existence of asymmetric information among firms on whether a rival (or partner) is being subsidized or not may play a key role in explaining whether subsidies are effective or not in increasing R&D investments. In particular, it is shown that if the existence of the subsidy is made public (e.g. because strict information release regulation about R&D subsidies is enforced) and depending on the strategic relationship between the firms’ R&D efforts, an R&D subsidy could even hurt the subsidized firm.

Downstream Mergers and Upstream Investment

In this paper, we show that downstream mergers increase the incentives of an up-stream firm to invest in cost-reducing R&D. The upstream firm revenues increase with industry profits, which in turn increase with concentration downstream and this explains the positive link between concentration and investment. This effect is so important that it outweights the negative effect on prices due to lower competition. Therefore, in our context, horizontal mergers are pro-competitive.

ATM Surcharges: Effects on Deployment and Welfare

This paper analyzes the effects of ATM surcharges on deployment and welfare, in a model where banks compete for ATM and banking services. Foreign fees, surcharges and the interchange fee are endogenously determined. We find situations in which surcharges are welfare enhancing. Under strategic fee setting, the increase in deployment caused by surcharging might compensate the surplus loss caused by the increase in prices.

Patent Licensing by Means of an Auction: Internal versus External Patentee

An independent research laboratory owns a patented process innovation that can be licensed by means of an auction to two Cournot duopolists producing differentiated goods. For large innovations and close enough substitute goods the patentee auctions off only one licence, preventing the full diffusion of the innovation. For this range of parameters, however, if the laboratory merged with one of the firms in the industry, full technology diffusion would be implemented as the merged entity would always license the innovation to the rival firm. This explains that, in this context, a vertical merger is both profitable and welfare improving.

Welfare effects of downstream mergers and upstream market concentration

We consider a dominant upstream firm selling an input to several downstream firms through observable, non-discriminatory two-part tariff contracts. Downstream firms can alternatively buy the input from a less efficient source of supply. In this setting, we analyze the relationship between the competitive effects of downstream mergers and the level of concentration at the upstream level. We show that a downstream merger leads to lower wholesale prices. This translates into lower final prices only when the upstream market is sufficiently concentrated. In this case, a downstream merger tends to be both procompetitive and profitable.