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: the surplus from entry prior to the CL deadline may be negative, and 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.
Bond, Eric W., and Kamal Saggi.
"Bargaining over Entry with a Compulsory License Deadline: Price Spillovers and Surplus Expansion."
American Economic Journal: Microeconomics,
Neoclassical Models of Trade
Multinational Firms; International Business
Contracting Out; Joint Ventures; Technology Licensing
Chemicals; Plastics; Rubber; Drugs; Biotechnology
Intellectual Property and Intellectual Capital