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Technology licensing under convex costs

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  • Arijit Mukherjee

Abstract

The technology licensing literature has completely dominated by the assumption of constant returns to scale technology, while the implications of convex costs have been discussed extensively in the Industrial Organization literature or in the Microeconomics literature, in general. We show that an “outside innovator” and the society may prefer royalty licensing compared to auction (or fixed-fee licensing) under convex costs. There can also be conflicting interests between the innovator and the society about the preferred licensing contract. However, the consumers always prefer auction. It follows from our analysis that a combination of royalty and fixedfee can dominate both auction (of fixed-fee licensing) and royalty only licensing.

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Bibliographic Info

Paper provided by University of Nottingham, School of Economics in its series Discussion Papers with number 10/05.

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Handle: RePEc:not:notecp:10/05

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Keywords: Auction; Convex cost; Fixed-fee; Licensing; Royalty;

References

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  1. Choi, Jay Pil, 2001. "Technology transfer with moral hazard," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 249-266, January.
  2. 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.
  3. Andrea Fosfuri & Esther Roca, 2004. "Optimal Licensing Strategy: Royalty or Fixed Fee?," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 3(1), pages 13-19, April.
  4. Tarun Kabiraj, 2005. "Technology Transfer In A Stackelberg Structure: Licensing Contracts And Welfare," Manchester School, University of Manchester, vol. 73(1), pages 1-28, 01.
  5. Mukherjee, Arijit & Balasubramanian, N., 2001. "Technology transfer in a horizontally differentiated product market," Research in Economics, Elsevier, vol. 55(3), pages 257-274, September.
  6. Kamien, Morton I. & Tauman, Yair & Zang, Israel, 1988. "Optimal license fees for a new product," Mathematical Social Sciences, Elsevier, vol. 16(1), pages 77-106, August.
  7. Sougata Poddar & Uday Bhanu Sinha, 2002. "On Patent Licensing in Spatial Competition," Departmental Working Papers wp0212, National University of Singapore, Department of Economics.
  8. Sougata Poddar & Uday Bhanu Sinha, 2002. "The Role of Fixed Fee and Royalty in Patent Licensing," Departmental Working Papers wp0211, National University of Singapore, Department of Economics.
  9. Tarun Kabiraj, 2004. "Patent Licensing in a Leadership Structure," Manchester School, University of Manchester, vol. 72(2), pages 188-205, 03.
  10. 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).
  11. 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.
  12. 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.
  13. 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.
  14. 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.
  15. Kamien, Morton I & Tauman, Yair, 2002. "Patent Licensing: The Inside Story," Manchester School, University of Manchester, vol. 70(1), pages 7-15, January.
  16. 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.
  17. Fauli-Oller, Ramon & Sandonis, Joel, 2002. "Welfare reducing licensing," Games and Economic Behavior, Elsevier, vol. 41(2), pages 192-205, November.
  18. Beggs, A. W., 1992. "The licensing of patents under asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 10(2), pages 171-191, June.
  19. Wang, X Henry & Yang, Bill Z, 1999. "On Licensing under Bertrand Competition," Australian Economic Papers, Wiley Blackwell, vol. 38(2), pages 106-19, June.
  20. repec:ebl:ecbull:v:12:y:2007:i:3:p:1-6 is not listed on IDEAS
  21. repec:ebl:ecbull:v:4:y:2002:i:6:p:1-6 is not listed on IDEAS
  22. Sougata Poddar & Uday Bhanu Sinha, 2005. "Patent Licensing from High-Cost Firm to Low-Cost Firm," Departmental Working Papers wp0503, National University of Singapore, Department of Economics.
  23. Rockett, Katharine, 1990. "The quality of licensed technology," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 559-574, December.
  24. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July.
  25. Ana I. Saracho, 2002. "Patent Licensing Under Strategic Delegation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(2), pages 225-251, 06.
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