22th April, Uncertainty and Licensing in a Vertical Structure Fang-yueh Chen National Chung Cheng University Tsai-chen Shen Tatung Institute of Commerce and Technology This paper is to be presented in 「 Corporate Governance, Foreign Entry, and Market Competition 」 International Conference 2011,held in National University of Kaohsiung, R.O.C.

2 I. Motivations Licensing in a vertical structure Licensing with risk sharing Endogenizing insider and outsider models Licensing and vertical externality

3 II. Purposes Investigate how an input monopolist shares risks through international licensing and its consequences Examine the impact of entry in the downstream market

4 III. Literature reviews Related to vertical structure: Mukherjee (2010a), Mukerjee and Ray (2007, MS), Mukherjee and Pennings (2011, IJIO) Related to threat of entry: Kabiraj and Marjit (1993, JDE), Saggi (1996, RIE), Pack and Saggi (2001, JDE), Dinda and Mukherjee (2011, JPET) Related to uncertainty: Bousquet et al. (1998, IJIO)

5 IV. The basic model Country JCountry T Figure 1: The basic model Firm A Firm B Firm C Country E input market Licensing

6 V. Sequence of moves and main equations (Cont.) Stage 1: Licensing game Stage 2: Input market equilibrium Stage 3: The uncertainty resolves Stage 4: Final goods market equilibrium

7 V. Sequence of moves and main equations

8 VI. The intuition of licensing and the finding (Cont.)

9 VI. The intuition of licensing and the finding

10 VII. Equilibrium with licensing and entry mode of an outsider (cont.)

11 VII. Equilibrium with licensing and entry mode of an outsider

12 VIII. The extended model Country JCountry T Firm A Firm B Firm C Country E Figure 4: The extended model Firm D Input Market, M 1 Licensing Input Market, M 2

13 IX. Main equations

14 X. The intuition of licensing and the finding

15 XI. The equilibrium in the extended model (Cont.)

16 XI. The equilibrium in the extended model (Cont.)

17 XI. The equilibrium in the extended model

18 Thank for your listening and comments are very welcome.