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  • Yair Tauman

    () (Department of Economics, Stony Brook University)

  • Debrapiya Sen

    () (Department of Economics, Ryerson University, Toronto, ON, Canada.)

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    Abstract

    This article considers the problem of patent licensing in a Cournot oligopoly under a class of general demand functions. We consider two cases, the case where the innovator is an outsider and the one where it is one of the incumbent rms. The licensing policies considered are upfront fees, royalties and combinations of the two. It is shown that (i) for generic values of magnitudes of the innovation, a royalty policy is better than fee or auction provided the industry size is relatively large, (ii) under combinations of fees and royalties, provided the innovation is relatively signi cant (or the industry size is relatively large), (a) there is always an optimal policy where the innovation is licensed to practically all rms of the industry and (b) any optimal combination includes a positive royalty.

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    File URL: http://www.stonybrook.edu/economics/research/papers/2012/licensingDeb-Yair.pdf
    File Function: First version, 2012
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    Bibliographic Info

    Paper provided by Stony Brook University, Department of Economics in its series Department of Economics Working Papers with number 12-05.

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    Date of creation: Aug 2012
    Date of revision:
    Handle: RePEc:nys:sunysb:12-05

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    Postal: Stony Brook, NY 11794-4384
    Phone: (631)632-7540
    Fax: (631)632-7516
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    Web page: http://www.stonybrook.edu/economics
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    References

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    1. San Martín Lizarralde, Marta & Saracho de la Torre, Ana Isabel, 2009. "Royalty Licensing," IKERLANAK 2009-40, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    2. 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.
    3. Giebe, Thomas & Wolfstetter, Elmar G., 2007. "License Auctions with Royalty Contracts for (Winners and) Losers," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 199, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    4. 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.
    5. Sougata Poddar & Uday Bhanu Sinha, 2004. "On Patent Licensing in Spatial Competition," The Economic Record, The Economic Society of Australia, vol. 80(249), pages 208-218, 06.
    6. Inés MACHO-STADLER & David PEREZ-CASTRILLO, 1991. "Contrats de licences et asymétrie d'information," Annales d'Economie et de Statistique, ENSAE, issue 24, pages 189-208.
    7. Nancy T. Gallini & Ralph A. Winter, 1985. "Licensing in the Theory of Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 237-252, Summer.
    8. Nisvan Erkal, 2003. "The Decision to Patent, Cumulative Innovation,and Optimal Policy," Department of Economics - Working Papers Series 877, The University of Melbourne.
    9. Choi, Jay Pil, 1996. "Technology Transfer with Moral Hazard," Economics Series 22, Institute for Advanced Studies.
    10. Tauman, Yair & Weng, Ming-Hung, 2012. "Selling patent rights and the incentive to innovate," Economics Letters, Elsevier, vol. 114(3), pages 241-244.
    11. Gallini, Nancy T, 1984. "Deterrence by Market Sharing: A Strategic Incentive for Licensing," American Economic Review, American Economic Association, vol. 74(5), pages 931-41, December.
    12. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July.
    13. Sen, Debapriya & Tauman, Yair, 2007. "General licensing schemes for a cost-reducing innovation," Games and Economic Behavior, Elsevier, vol. 59(1), pages 163-186, April.
    14. Luigi Filippini, 2005. "Licensing Contract In A Stackelberg Model," Manchester School, University of Manchester, vol. 73(5), pages 582-598, 09.
    15. 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.
    16. Nisvan Erkal, 2004. "Optimal Licensing Policy in Differentiated Industries," Department of Economics - Working Papers Series 894, The University of Melbourne.
    17. Naoki Watanabe & Shigeo Muto, 2008. "Stable profit sharing in a patent licensing game: general bargaining outcomes," International Journal of Game Theory, Springer, vol. 37(4), pages 505-523, December.
    18. Michael L. Katz & Carl Shapiro, 1985. "On the Licensing of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 504-520, Winter.
    19. Stamatopoulos, Giorgos & Tauman, Yair, 2008. "Licensing of a quality-improving innovation," Mathematical Social Sciences, Elsevier, vol. 56(3), pages 410-438, November.
    20. 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.
    21. Beggs, A. W., 1992. "The licensing of patents under asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 10(2), pages 171-191, June.
    22. Wang, X Henry & Yang, Bill Z, 1999. "On Licensing under Bertrand Competition," Australian Economic Papers, Wiley Blackwell, vol. 38(2), pages 106-19, June.
    23. 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.
    24. Debapriya Sen & Giorgos Stamatopoulos, 2009. "Technology Transfer Under Returns To Scale," Manchester School, University of Manchester, vol. 77(3), pages 337-365, 06.
    25. Tarun Kabiraj, 2004. "Patent Licensing in a Leadership Structure," Manchester School, University of Manchester, vol. 72(2), pages 188-205, 03.
    26. Sen, Debapriya & Stamatopoulos, Giorgos, 2009. "Drastic innovations and multiplicity of optimal licensing policies," Economics Letters, Elsevier, vol. 105(1), pages 7-10, October.
    27. Jelnov, Artyom & Tauman, Yair, 2009. "The private value of a patent: A cooperative approach," Mathematical Social Sciences, Elsevier, vol. 58(1), pages 84-97, July.
    28. 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.
    29. Rockett, Katharine, 1990. "The quality of licensed technology," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 559-574, December.
    30. Muto, Shigeo, 1987. "Possibility of relicensing and patent protection," European Economic Review, Elsevier, vol. 31(4), pages 927-945, June.
    31. Yair Tauman & Naoki Watanabe, 2007. "The Shapley Value of a Patent Licensing Game: the Asymptotic Equivalence to Non-cooperative Results," Economic Theory, Springer, vol. 30(1), pages 135-149, January.
    32. Ana I. Saracho, 2002. "Patent Licensing Under Strategic Delegation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(2), pages 225-251, 06.
    33. Sen, Debapriya, 2005. "Fee versus royalty reconsidered," Games and Economic Behavior, Elsevier, vol. 53(1), pages 141-147, October.
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