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Optimal Licensing Contract: The Implications of Preference Function

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  • Arijit Mukherjee

Abstract

Our analysis provides a rationale for the existence of a positive fixed-fee and output royalty in the licensing contracts. In this article, we show that the preference functions play an important role in this respect. As the market expansion effect gets weaker, it reduces the possibility of a royalty-only contract, thus increasing the possibility of the co-existence of a positive fixed-fee and output royalty in the licensing contract. Our argument is different from the existing reasons based on imitation, number of firms, product differentiation and decreasing returns to scale. JEL: D21, D43, L13

Suggested Citation

  • Arijit Mukherjee, 2020. "Optimal Licensing Contract: The Implications of Preference Function," Arthaniti: Journal of Economic Theory and Practice, , vol. 19(1), pages 61-67, June.
    • Handle: RePEc:sae:artjou:v:19:y:2020:i:1:p:61-67
    DOI: 10.1177/0976747919831803
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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. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July.
    3. Nancy T. Gallini & Brian D. Wright, 1990. "Technology Transfer under Asymmetric Information," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 147-160, Spring.
    4. Rockett, Katharine, 1990. "The quality of licensed technology," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 559-574, December.
    5. Mukherjee, Arijit & Balasubramanian, N., 2001. "Technology transfer in a horizontally differentiated product market," Research in Economics, Elsevier, vol. 55(3), pages 257-274, September.
    6. Arijit Mukherjee, 2014. "Licensing under convex costs," Journal of Economics, Springer, vol. 111(3), pages 289-299, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Licensing; fixed-fee; royalty; preference function; product differentiation;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - 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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