Bargaining and delay in patent licensing
AbstractWe consider a model of licensing of a non-drastic innovation in which the patent holder (an outside innovator) negotiates either up-front fixed fees or per-unit royal- ties with two firms producing horizontally differentiated brands and competing à la Cournot. We investigate how licensing schemes (fixed fee or per-unit royalty) and the number of licenses sold (exclusive licensing or complete technology diffusion) affect price agreements and delays in reaching an agreement. We show that the patent holder prefers to license by means of up-front fixed fees except if market competition is mild and the innovation size is small. Once there is private information about the relative bargaining power of the parties, the patent holder may prefer licensing by means of per-unit royalties even if market competition is strong. Moreover, the delay in reaching an agreement is greater whenever the patent holder chooses to negotiate up-front fixed fees instead of per-unit royalties.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2010077.
Date of creation: 01 Dec 2010
Date of revision:
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patent licensing; fixed fee; royalty; bargaining; private information;
Find related papers by JEL classification:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-12 (All new papers)
- NEP-COM-2011-02-12 (Industrial Competition)
- NEP-CTA-2011-02-12 (Contract Theory & Applications)
- NEP-GTH-2011-02-12 (Game Theory)
- NEP-IND-2011-02-12 (Industrial Organization)
- NEP-INO-2011-02-12 (Innovation)
- NEP-IPR-2011-02-12 (Intellectual Property Rights)
- NEP-TID-2011-02-12 (Technology & Industrial Dynamics)
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.:
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- Macho, I. & Martinez-Giralt, X. & Perez-Castrillo, D., 1993. "The Role of Information in Licensing Contract Design," UFAE and IAE Working Papers 216.93, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- CABALLERO-SANZ, Francisco & MONER-COLONQUES, Rafael & SEMPERE-MONERRIS, J.J., 1994.
"Optimal Licensing in a Spatial Model,"
CORE Discussion Papers
1994031, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Sempere Monerris, Jose J & Vannetelbosch, Vincent J, 2001. "The Relevance of Bargaining for the Licensing of a Cost-Reducing Innovation," Bulletin of Economic Research, Wiley Blackwell, vol. 53(2), pages 101-15, April.
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