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Optimal Two-Part Tariff Licensing Contracts with Differentiated Goods and Endogenous R&D

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  • Ramón Faulí-Oller

    ()
    (Universidad de Alicante)

  • Joel Sandonís

    ()
    (Universidad de Alicante)

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    Abstract

    In this paper we get the optimal two-part tariff contract for the licensing of a cost reducing innovation to a differentiated goods industry of a general size. We analyze the cases where the patentee is an independent laboratory or an incumbent firm. We show that, regardless of the number of firms, the degree of product differentiation and the type of patentee, the innovation is licensed to all firms. Moreover, we endogenize R&D investment and get that an internal patentee invests more (less) in R&D when the technological opportunity is low (high). In this paper we get the optimal two-part tariff contract for the licensing of a cost reducing innovation to a differentiated goods industry of a general size. We analyze the cases where the patentee is an independent laboratory or an incumbent firm. We show that, regardless of the number of firms, the degree of product differentiation and the type of patentee, the innovation is licensed to all firms. Moreover, we endogenize R&D investment and get that an internal patentee invests more (less) in R&D when the technological opportunity is low (high).

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2008-12.pdf
    File Function: Fisrt version / Primera version, 2008
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    Bibliographic Info

    Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2008-12.

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    Length: 26 pages
    Date of creation: Jul 2008
    Date of revision:
    Publication status: Published by Ivie
    Handle: RePEc:ivi:wpasad:2008-12

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    Related research

    Keywords: patent licensing; two-part tariff contracts; R&D; product differentiation.;

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    References

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    1. Can Erutku & Yves Richelle, 2007. "Optimal Licensing Contracts and the Value of a Patent," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(2), pages 407-436, 06.
    2. Chun-Hsiung Liao & Debapriya Sen, 2005. "Subsidy In Licensing: Optimality And Welfare Implications," Manchester School, University of Manchester, vol. 73(3), pages 281-299, 06.
    3. 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.
    4. 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.
    5. Debapriya Sen & Yair Tauman, 2002. "General licensing schemes for a cost-reducing innovation," Department of Economics Working Papers 02-03, Stony Brook University, Department of Economics.
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