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Patent licensing revisited: heterogeneous firms and product differentiation

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Author Info
Rubén Hernández-Murillo
Gerard Llobet

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Abstract

In this paper we study the optimal licensing agreement between a patentholder of a cost-reducing innovation and firms that have heterogeneous uses for the new technology. We consider the case in which these firms are competitors in a downstream market. We extend the competition environment among the licensees beyond the Cournot/Bertrand models considered by the previous literature to a framework with differentiated products. We also assume that potential licensees have private information about the usefulness of the new technology. We characterize two purposes the optimal licensing contract serves to the patentholder: separation of the licensees and competition softening in the downstream market. We also describe how the optimal contract changes with the degree of product differentiation.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2002-031.

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Date of creation: 2004
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Publication status: Published in International Journal of Industrial Organization, January 2006, 24(1), pp. 149-75
Handle: RePEc:fip:fedlwp:2002-031

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Keywords: Patents;

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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.:
  1. Llobet, Gerard, 2003. "Patent litigation when innovation is cumulative," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1135-1157, October. [Downloadable!] (restricted)
  2. Bousquet, Alain & Cremer, Helmuth & Ivaldi, Marc & Wolkowicz, Michel, 1998. "Risk sharing in licensing," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 535-554, September. [Downloadable!] (restricted)
  3. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  4. Kamien, Morton I., 1992. "Patent licensing," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 11, pages 331-354 Elsevier. [Downloadable!] (restricted)
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(explanations, 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.)

  1. Abel Elizalde & Rafael Repullo, 2004. "Economic And Regulatory Capital. What Is The Difference?," Working Papers wp2004_0422, CEMFI. [Downloadable!]
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  2. Thomas Giebe & Elmar Wolfstetter, 2006. "License Auctions with Royalty Contracts for Losers," Discussion Papers 96, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
  3. Thomas Giebe & Elmar Wolfstetter, 2007. "License Auctions with Royalty Contracts for (Winners and) Losers," Discussion Papers 199, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  4. Rey, Patrick & Salant, David, 2008. "Abuse of Dominance and Licensing of Intellectual Property," MPRA Paper 9454, University Library of Munich, Germany. [Downloadable!]
  5. Josep Pijoan-Mas, 2003. "Precautionary Savings Or Working Longer Hours?," Working Papers wp2003_0311, CEMFI. [Downloadable!]
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