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Bargaining and delay in patent licensing

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  • MAULEON, Ana

    ()
    (Facultés universitaires Saint-Louis, CEREC, B-1000 Brussels, Belgium and Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

  • VANNETELBOSCH, Vincent

    ()
    (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

  • VERGARI, Cecilia

    ()
    (Department of Economic Sciences, University of Bologna, I-40125 Bologna, Italy)

Abstract

We 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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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2010077.

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Date of creation: 01 Dec 2010
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Handle: RePEc:cor:louvco:2010077

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Keywords: patent licensing; fixed fee; royalty; bargaining; private information;

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  1. 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).
  2. 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).
  3. Jose J. Sempere Monerris & Vincent Vannetelbosch, 2001. "The patent holder's bargaining power and the licensing of an innovation," Applied Economics Letters, Taylor & Francis Journals, vol. 8(12), pages 765-769.
  4. 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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