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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by The Economic Society of Australia in its journal Economic Record.
Volume (Year): 86 (2010)
Issue (Month): 275 (December)
Contact details of provider:
Postal: Central Council Administration, L.P.O. Box 2161, Hawthorn VIC 3122
Phone: 61 3 9497 4140
Fax: 61 3 9497 4140
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0013-0249
More information through EDIRC
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
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nisvan Erkal, 2005.
"Optimal Licensing Policy in Differentiated Industries,"
The Economic Record,
The Economic Society of Australia, vol. 81(252), pages 51-60, 03.
- Nisvan Erkal, 2004. "Optimal Licensing Policy in Differentiated Industries," Department of Economics - Working Papers Series 894, The University of Melbourne.
- Sougata Poddar & Uday Bhanu Sinha, 2002.
"On Patent Licensing in Spatial Competition,"
Departmental Working Papers
wp0212, National University of Singapore, Department of Economics.
- De Fraja, Giovanni, 1996. "Product line competition in vertically differentiated markets," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 389-414, May.
- Shapiro, Carl, 1985. "Patent Licensing and R&D Rivalry," American Economic Review, American Economic Association, vol. 75(2), pages 25-30, May.
- Li, Changying & Geng, Xiaoyan, 2008. "Licensing to a durable-good monopoly," Economic Modelling, Elsevier, vol. 25(5), pages 876-884, September.
- Luigi Filippini, 2005. "Licensing Contract In A Stackelberg Model," Manchester School, University of Manchester, vol. 73(5), pages 582-598, 09.
- Arijit Mukherjee, 2002.
"Innovation, Licensing and Welfare,"
Keele Economics Research Papers
KERP 2002/03, Centre for Economic Research, Keele University.
- Stamatopoulos, Giorgos & Tauman, Yair, 2008. "Licensing of a quality-improving innovation," Mathematical Social Sciences, Elsevier, vol. 56(3), pages 410-438, November.
- Anderson, Simon P & Neven, Damien J, 1991. "Cournot Competition Yields Spatial Agglomeration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 793-808, November.
- Fauli-Oller, Ramon & Sandonis, Joel, 2002. "Welfare reducing licensing," Games and Economic Behavior, Elsevier, vol. 41(2), pages 192-205, November.
- Kamien, Morton I & Tauman, Yair, 2002. "Patent Licensing: The Inside Story," Manchester School, University of Manchester, vol. 70(1), pages 7-15, January.
- Li, Changying & Song, Juan, 2009. "Technology licensing in a vertically differentiated duopoly," Japan and the World Economy, Elsevier, vol. 21(2), pages 183-190, March.
- Francisco Caballero-sanz & Rafael Moner-colonques & Jose Sempere-monerris, 2005. "Licensing policies for a new product," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 14(8), pages 697-713.
- Avenel, E. & Caprice, S., 2006. "Upstream market power and product line differentiation in retailing," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 319-334, March.
- Arijit Mukherjee & Soma Mukherjee, 2005. "Foreign Competition With Licensing," Manchester School, University of Manchester, vol. 73(6), pages 653-663, December.
- Gallini, Nancy T, 1984. "Deterrence by Market Sharing: A Strategic Incentive for Licensing," American Economic Review, American Economic Association, vol. 74(5), pages 931-41, December.
- Tarun Kabiraj, 2005. "Technology Transfer In A Stackelberg Structure: Licensing Contracts And Welfare," Manchester School, University of Manchester, vol. 73(1), pages 1-28, 01.
- Rockett, Katharine, 1990. "The quality of licensed technology," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 559-574, December.
- Kamien, Morton I & Tauman, Yair, 1986. "Fees versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 471-91, August.
- Pal, Debashis & Sarkar, Jyotirmoy, 2002. "Spatial competition among multi-store firms," International Journal of Industrial Organization, Elsevier, vol. 20(2), pages 163-190, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.