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License Auctions with Royalty Contracts for Losers

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  • Giebe, Thomas
  • Wolfstetter, Elmar G.

Abstract

This paper revisits the standard analysis of licensing a cost reducing innovation by an outside innovator to a Cournot oligopoly. We propose a new mechanism that combines elements of a license auction with royalty licensing by granting the losers of the auction the option to sign a royalty contract. The optimal new mechanism eliminates the losses from exclusionary licensing without reducing bidders’ surplus; therefore, it is more profitable than both standard license auctions and pure royalty licensing. We also take into account that the number of licenses must be an integer, which is typically ignored in the literature.

Suggested Citation

  • Giebe, Thomas & Wolfstetter, Elmar G., 2006. "License Auctions with Royalty Contracts for Losers," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 96, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    • Handle: RePEc:trf:wpaper:96
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    References listed on IDEAS

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    More about this item

    Keywords

    Patents; Licensing; Auctions; Royalty; Innovation; R&D; Mechanism Design;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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