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Licensing to a More Efficient Rival

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  • Fridtjof Anderson

Abstract

This paper studies licensing of a cost-reducing innovation in an environment with horizontal product differentiation where the licensee is the most efficient firm in absence of the innovation. We derive the optimal two-part tariff and show that when we allow for negative royalty rates, the optimal contract may involve the patentee paying its rival a per-unit subsidy.

Suggested Citation

  • Fridtjof Anderson, 2014. "Licensing to a More Efficient Rival," Manchester School, University of Manchester, vol. 82(6), pages 653-676, December.
    • Handle: RePEc:bla:manchs:v:82:y:2014:i:6:p:653-676
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    File URL: http://hdl.handle.net/10.1111/manc.12036
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    References listed on IDEAS

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    1. Morton I. Kamien & Yair Tauman, 1986. "Fees Versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 471-491.
    2. Fauli-Oller, Ramon & Sandonis, Joel, 2002. "Welfare reducing licensing," Games and Economic Behavior, Elsevier, vol. 41(2), pages 192-205, November.
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    6. Sougata Poddar & Uday Bhanu Sinha, 2010. "Patent Licensing from a High‐Cost Firm to a Low‐Cost Firm," The Economic Record, The Economic Society of Australia, vol. 86(274), pages 384-395, September.
    7. Chun‐Hsiung Liao & Debapriya Sen, 2005. "Subsidy In Licensing: Optimality And Welfare Implications," Manchester School, University of Manchester, vol. 73(3), pages 281-299, June.
    8. Mukherjee, Arijit & Balasubramanian, N., 2001. "Technology transfer in a horizontally differentiated product market," Research in Economics, Elsevier, vol. 55(3), pages 257-274, September.
    9. repec:ebl:ecbull:v:4:y:2004:i:14:p:1-6 is not listed on IDEAS
    10. Macho-Stadler, Ines & Martinez-Giralt, Xavier & David Perez-Castrillo, J., 1996. "The role of information in licensing contract design," Research Policy, Elsevier, vol. 25(1), pages 43-57, January.
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    Cited by:

    1. Cuihong Fan & Byoung Heon Jun & Elmar G. Wolfstetter, 2018. "Optimal licensing under incomplete information: the case of the inside patent holder," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(4), pages 979-1005, December.
    2. Chin-Sheng Chen, 2017. "Endogenous Market Structure and Technology Licensing," The Japanese Economic Review, Japanese Economic Association, vol. 68(1), pages 115-130, March.
    3. Chin-Sheng Chen, 2017. "Endogenous Market Structure and Technology Licensing," The Japanese Economic Review, Springer, vol. 68(1), pages 115-130, March.

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