Subsidy in licensing: Optimality and welfare implications

Chun Hsiung Liao, Debapriya Sen

Research output: Contribution to journalArticlepeer-review

34 Citations (Scopus)


This paper shows that subsidy can naturally emerge as part of the equilibrium strategy of an innovator of a cost-reducing innovation in a Cournot oligopoly when the innovator is endowed with combinations of upfront fee and royalty. It is further shown that there are robust regions where the social welfare is higher in subsidy-based licensing compared to the regime where licensing involving subsidy is not allowed. The analysis is carried out for both outsider and incumbent innovators.

Original languageEnglish
Pages (from-to)281-299
Number of pages19
JournalManchester School
Issue number3
Publication statusPublished - 2005 Jun

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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