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Fragmented property rights and royalty bargaining

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  • Clark, Derek J.
  • Pereau, Jean Christophe

Abstract

We consider production by a firm that relies on the patent rights that are held by other actors. Before production can take place, bargains have to be struck with each patent holder over the royalty per unit produced. In the negotiations, a patent holder must be mindful of the fact that a large royalty will increase the product price and lower demand for the final product. Hence each patent holder would prefer to gain a large royalty at the expense of rivals. When the producer makes the first offer in an alternating offer framework, we analyze whether it should conduct negotiations sequentially with some grouping of patent holders or simultaneously. We demonstrate that the producer will prefer simultaneous negotiation. An individual patent holder would prefer to negotiate early with the producer, and then to see remaining rights holders negotiate simultaneously. A firm that holds several patents would want to negotiate royalties on each one sequentially and then have simultaneous negotiation of payments to other rights holders.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 72 (2009)
Issue (Month): 1 (October)
Pages: 546-553

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Handle: RePEc:eee:jeborg:v:72:y:2009:i:1:p:546-553

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Patents Property rights Bargaining Sequential negotiation Simultaneous negotiation;

References

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  1. Inderst, Roman, 1998. "Multi-Issue Bargaining with Endogenous Agenda," Sonderforschungsbereich 504 Publications 98-35, Sonderforschungsbereich 504, Universit├Ąt Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  2. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  3. Horn, H. & Wolinsky, A., 1988. "Bilateral Monopolies And Incentives For Merger," Papers 410, Stockholm - International Economic Studies.
  4. Banerji, A., 2002. "Sequencing strategically: wage negotiations under oligopoly," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 1037-1058, September.
  5. Yair Tauman & Naoki Watanabe, 2007. "The Shapley Value of a Patent Licensing Game: the Asymptotic Equivalence to Non-cooperative Results," Economic Theory, Springer, vol. 30(1), pages 135-149, January.
  6. Robert Marshall & Antonio Merlo, 1996. "Pattern bargaining," Staff Report 220, Federal Reserve Bank of Minneapolis.
    • Robert C. Marshall & Antonio Merlo, 2004. "Pattern Bargaining," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 239-255, 02.
  7. Chaim Fershtman, 1986. "The Importance of the Agenda in Bargaining," Discussion Papers 689, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Thomas H. Noe & Jun Wang, 2004. "Fooling All of the People Some of the Time: A Theory of Endogenous Sequencing in Confidential Negotiations," Review of Economic Studies, Wiley Blackwell, vol. 71, pages 855-881, 07.
  9. Shapiro, Carl, 2006. "Injunctions, Hold-Up, and Patent Royalties," Competition Policy Center, Working Paper Series qt6px3m1rb, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  10. Naoki Watanabe & Shigeo Muto, 2008. "Stable profit sharing in a patent licensing game: general bargaining outcomes," International Journal of Game Theory, Springer, vol. 37(4), pages 505-523, December.
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