Patent licensing in spatial competition: Does pre-innovation cost asymmetry matter?
AbstractWe consider the optimal licensing strategy of an insider patentee in a circular city of Salop’s model and in a linear city of Hotelling’s model when firms have asymmetric pre-innovation marginal costs of production and compete in prices. We completely characterize the optimal licensing policies using a fixed fee and per-unit royalty under the drastic and non-drastic innovations. We find that when the innovative firm is efficient compared to the licensee at the pre-innovation stage then the results regarding optimal licensing policy coincide with the results described in the literature with symmetric firms. However, this is not true when the innovative firm is inefficient in the pre-innovation stage compared to the licensee. To that end, we show that even a drastic innovation can be licensed using a royalty scheme when the patentee is highly inefficient compared to licensee in the pre-innovation stage and the size of the innovation is intermediate. We also show that in this set-up, fixed fee licensing is never optimal.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 32764.
Date of creation: 12 Aug 2011
Date of revision:
Innovation; Technology transfer; Salop model; Hotelling model; Patent licensing; symmetric and asymmetric costs;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-22 (All new papers)
- NEP-COM-2011-08-22 (Industrial Competition)
- NEP-CSE-2011-08-22 (Economics of Strategic Management)
- NEP-GEO-2011-08-22 (Economic Geography)
- NEP-INO-2011-08-22 (Innovation)
- NEP-IPR-2011-08-22 (Intellectual Property Rights)
- NEP-SBM-2011-08-22 (Small Business Management)
- NEP-TID-2011-08-22 (Technology & Industrial Dynamics)
- NEP-URE-2011-08-22 (Urban & Real Estate Economics)
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