The economic sense of royalty rates
AbstractAcademic institutions, involved in technology transfer to industry, are always concerned about the "fairness" of the royalty rate payable to them. The common method used by practitioners is the "Industry-Standard Approach" which is based mainly on past experience. However such approach is very simplistic and fails to take into account importnat factors that effect royalty rate calculations. By using a simple financial model, the article demonstrates that expected sales volume of the end product is a key determinant of royalty rates. Higher expected sales volume enables the licensee to pay higher royalties to the licensor, while keeping its required rate of return unchanged. This point is totally overlooked by the "Industry-Standard Approach" and moreover it contradicts a commonly used practice to reduce the royalty rates with the increase in sales.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Finance with number 9709003.
Date of creation: 25 Sep 1997
Date of revision:
Note: Type of Document - Word; prepared on IBM PC ; to print on HP;
Contact details of provider:
Web page: http://126.96.36.199
Royalties Technology Transfer R&D Licensing;
Find related papers by JEL classification:
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.