Licensing a Vertical Product Innovation
AbstractThis paper studies the case where an outside patent holder licenses its vertical product innovation to two Cournot competitors. It is found that, under a fixed-fee contract, the patent holder prefers exclusive licensing. However, under a royalty or two‐part tariff contract, the patent holder favours non‐exclusive licensing. Moreover, in contrast to the standard argument by Kamien and Tauman, we show that, from the perspective of the patentee, royalty licensing can be superior to fixed‐fee licensing, if the degree of innovation is small. Two‐part tariff licensing generates a monopoly outcome in the final market and hence reduces both consumer surplus and social welfare, if the innovation is low.
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Bibliographic InfoArticle provided by The Economic Society of Australia in its journal Economic Record.
Volume (Year): 86 (2010)
Issue (Month): 275 (December)
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Find related papers by JEL classification:
- D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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