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Eric W Bond and Kamal Saggi
''Bargaining over entry with a compulsory license deadline: Price spillovers and surplus expansion''
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: (i) the surplus from entry prior to the CL deadline may be negative and (ii) 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.
Keywords: Patented Goods, Compulsory Licensing, Bargaining, Quality, Welfare.
JEL: F1 - Trade: General
C7 - Game Theory and Bargaining Theory: General
Manuscript Received : Mar 08 2016 Manuscript Accepted : Mar 13 2016

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