Showing papers by "Jay Pil Choi published in 2022"
TL;DR: In this article , the authors investigated how the arm's length principle (ALP) affects MNEs' licensing strategies and welfare in a model with a tax haven and found that termination of licensing in the presence of the ALP may worsen domestic welfare if the potential licensee and the MNE's subsidiary do not compete in the domestic market but may improve welfare if they compete.
Abstract: Multinational enterprises (MNEs) have incentive to reduce tax payment through transfer pricing. The incentive is stronger when MNEs own intangibles, because it is easy to transfer them across countries. To mitigate such strategic tax planning, the OECD proposes the arm’s length principle (ALP). This paper deals with technology patents as an example of intangibles and investigates how the ALP affects MNEs’ licensing strategies and welfare in a model with a tax haven. The ALP may distort MNEs’ licensing decisions, because providing a license to unrelated firms restricts MNEs’ profit-shifting opportunities due to the emergence of comparable transaction. Interestingly, the termination of licensing in the presence of the ALP may worsen domestic welfare if the (potential) licensee and the MNE’s subsidiary do not compete in the domestic market but may improve welfare if they compete. The results under ad valorem royalty are in distinct contrast with those under per-unit royalty.
TL;DR: In this article , a leverage theory of tying in markets with network edges was developed, where the unexploited consumer surpluses are used as a demand-side leverage to create a strategic "quasi installed-base" advantage in another market characterized by network edges.
Abstract: We develop a leverage theory of tying in markets with network e⁄ects. When a monopolist in one market cannot fully extract the whole surplus from consumers, tying can be a mechanism through which the unexploited consumer surpluses are used as a demand-side leverage to create a strategic "quasi installed-base" advantage in another market characterized by network e⁄ects. Our mechanism does not require the commitment assumption with technical tying. Tying can lead to the exclusion of more e¢ cient rival (cid:133)rms in the tied market, but expand the tying good market if the latter market is not fully covered with independent pricing. Welfare implications are also discussed.
TL;DR: In this article , the authors examine tippy network markets that accommodate price discrimination and show that when a mild equilibrium refinement, the monotonicity criterion, is adopted, network competition may have a unique subgame-perfect equilibrium regarding the winner's identity.
Abstract: We examine tippy network markets that accommodate price discrimination. The analysis shows that when a mild equilibrium refinement, the monotonicity criterion, is adopted, network competition may have a unique subgame-perfect equilibrium regarding the winner's identity; the prevailing brand may be fully determined by its product features. We bring out the concept of the dominant value margin, which is a metric of the effectiveness of divide-and-conquer strategies. The supplier with the larger dominant value margin may always sell to all customers in equilibrium. Such a market outcome is not necessarily socially efficient.