The Research On Technology Licensing And Social Welfare Under Vertical Integration

The problem of vertical merger and technology licensing has been a hot topic in industrial organization theory.Through combing previous research literature,using the theory of industrial organization model analysis and comparative analysis,this article carried on the new study about the vertical merger and technology licensing from two aspects.First of all,the past theory research considers them as the two strategies of the patent holders in technology transfer,and there are few research considering that in some cases,the patent holders face the vertical merger and technology licensing issuesat the same time.For non-productive patent holders,merger with a downstream vendor means transforming to be a productive manufacturer.When there are at least two competing vendors in the final product market,the new manufacturer is bound to consider new technology licensing strategies to maximize its own benefits.Therefore,through homogeneous product under Cournot competition model of duopoly,this article studied the licensing problems of patent holders in the before and after the vertical merger of technology,and compared the patent holder’s authorization policy and authorization contract before and after the vertical merger.And through the comparison,this article tried to study how vertical integration and technology licensing will affect consumer surplus and social welfare.Secondly,in the study of the past,researches on technology licensing problems based on condition of incomplete information are relatively small,Using game theory and information economics,this paper put the problems investigation mentioned above under the condition of incomplete information.The condition of incomplete information in this article here means that the information of downstream manufacturer’s production cost is asymmetry,namely manufacturers there may be two types of costs,high cost and low cost.For manufacturers and the competitors,the specific cost type is unknown,only the probability distribution is common knowledge.Under this condition,adverse selection problem may arise,which is bound to affect the patent holders’ authorization policy and authorization contract form.By establishing linear programming,using backward induction and Kuhn tucker law,this paper obtained the new conclusion under the condition of incomplete information.and compared that with the conclusion under the condition of complete information.The research results show that when the market scale is large,in terms of social welfare,whether downstream vendors’ cost of information is symmetry or not,vertical integration and the corresponding technology licensing will reduce social welfare.But the impact on the consumer welfare is different:under the condition of perfect competition,when market size is small,vertical integration will not influence the consumer surplus;when market scale is large,vertical integration improves the consumer surplus.In the case of information asymmetry,the result is the opposite.In terms of the patent holder’s technical authorization strategy and authorization contract form,the results of the two information conditions are different.Under the condition of complete information,when market size is small,the patentee will license through a fixed fee contract under the longitudinal separation structure;when market size is large,the patentee will license through unit non-exclusive license fee contract.The opposite is true of information asymmetry.However,either under the condition of complete information or under incomplete information with vertical merger structure,the patent owner will authorize through the unit fee contract.To sum up,the impact of vertical merger on technology authorization and social welfare depends on the size of the market and if the manufacturers’ cost information is symmetric.