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Seung-Leul Kim and Sang-Ho Lee
''Tariff-induced licensing contracts, consumers' surplus and welfare revisited''
( 2023, Vol. 43 No.2 )
In a trade model with technology transfer, Kabiraj and Kabiraj (2017) showed that a tariff on foreign products could induce fee licensing with zero royalty, resulting in the maximization of both consumers' surplus and domestic welfare. In this paper, we reexamine their model with an unconstrained two-part tariff licensing contract and show that if the foreign firm subsidizes the domestic firm's production via negative royalty, a higher tariff can induce a two-part tariff licensing contract, which leads to an increase in consumers' surplus and overall welfare.
Keywords: Two-part tariff contracts; Fee licensing; Negative royalty; Optimal tariff policies; Unconstrained two-part tariff licensing
JEL: F1 - Trade: General
L2 - Firm Objectives, Organization, and Behavior: General
Manuscript Received : Oct 24 2022 Manuscript Accepted : Jun 30 2023

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