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Vertical integration and the licensing of innovation with a fixed fee or a royalty

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Author Info
Lemarié, S.

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Abstract

In this paper, we analyse a situation where a patent holder is considered as an upstream firm that can license its innovation to some downstream companies that compete on a final market with differentiated products. Licensing contract may be based either on a royalty or a fixed fee. The patent holder can either be independant or vertically integrated with one of the downstream companies. We show that a licence based on a royalty works better with vertical integration, and that consequently, the patent holder have some interest to vertically integrate if it enables him to apply a royalty based license. The effect of vertical integration on the social surplus can be either positive or negative.

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Publisher Info
Paper provided by Grenoble Applied Economics Laboratory (GAEL) in its series Working Papers with number 200517.

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Date of creation: 2005
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Handle: RePEc:gbl:wpaper:200517

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Related research
Keywords: LICENSING; INNOVATION; VERTICAL INTEGRATION;

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Find related papers by JEL classification:
D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D

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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. Kamien, Morton I & Tauman, Yair, 1986. "Fees versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 471-91, August. [Downloadable!] (restricted)
  2. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter. [Downloadable!] (restricted)
  3. Richard Jensen & Marie Thursby, 2001. "Proofs and Prototypes for Sale: The Licensing of University Inventions," American Economic Review, American Economic Association, vol. 91(1), pages 240-259, March. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. Kamien, Morton I. & Oren, Shmuel S. & Tauman, Yair, 1992. "Optimal licensing of cost-reducing innovation," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 483-508. [Downloadable!] (restricted)
  6. ERUTKU, C. & RICHELLE, Yves, 2000. "Optimal Licensing Contracts and the Value of a Patent," Cahiers de recherche 2000-07, Universite de Montreal, Departement de sciences economiques.
  7. 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)
  8. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc. [Downloadable!]
  9. Henry Wang, X., 2002. "Fee versus royalty licensing in a differentiated Cournot duopoly," Journal of Economics and Business, Elsevier, vol. 54(2), pages 253-266. [Downloadable!] (restricted)
  10. Erutku, C. & Richelle, Y., 2000. "Optimal Licensing Contracts and the Value of a Patent," Cahiers de recherche 2000-07, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  11. Katz, Michael L & Shapiro, Carl, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 567-89, August. [Downloadable!] (restricted)
  12. Fauli-Oller, Ramon & Sandonis, Joel, 2003. "To merge or to license: implications for competition policy," International Journal of Industrial Organization, Elsevier, vol. 21(5), pages 655-672, May. [Downloadable!] (restricted)
  13. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July. [Downloadable!] (restricted)
  14. Macho-Stadler, Ines & Martinez-Giralt, Xavier & David Perez-Castrillo, J., 1996. "The role of information in licensing contract design," Research Policy, Elsevier, vol. 25(1), pages 43-57, January. [Downloadable!] (restricted)
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