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Per-Unit Royalty vs Fixed Fee: The Case of Weak Patents

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  • Rabah Amir

    ()
    (University of Arizona - University of Arizona)

  • David Encaoua

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Yassine Lefouili

    ()
    (GREMAQ - Groupe de recherche en économie mathématique et quantitative - CNRS : UMR5604 - Université des Sciences Sociales - Toulouse I - École des Hautes Études en Sciences Sociales (EHESS) - Institut national de la recherche agronomique (INRA) : UMR)

Abstract

This paper explores a licensor's choice between charging a per-unit royalty or a fixed fee when her innovation is covered by a weak patent, i.e. a patent that is likely to be invali- dated by a court if challenged. Using a general model where the nature of competition is not speci ed, we show that the patent holder prefers to use a per-unit royalty scheme if the strategic e¤ect of an increase in a potential licensee's unit cost on the aggregate equi- librium pro t is positive. To show the mildness of the latter condition, we establish that it holds in a Cournot (resp. Bertrand) oligopoly with homegenous (resp. heterogenous) products under very general assumptions on the demands faced by rms. As a byproduct of our analysis, we contribute to the oligopoly literature by o¤ering some new insights of independent interest regarding the e¤ects of cost variations on Cournot and Bertrand equilibria.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00595493.

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Date of creation: Feb 2011
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Handle: RePEc:hal:cesptp:halshs-00595493

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Keywords: Keywords: Licensing Schemes; Weak Patents; Patent Litigation.;

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References

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  23. Kamien, Morton I & Tauman, Yair, 1986. "Fees versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(3), pages 471-91, August.
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