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Patent Licensing from a High-Cost Firm to a Low-Cost Firm

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  • SOUGATA PODDAR
  • UDAY BHANU SINHA

Abstract

We depart from the standard framework and study optimal patent licensing under Cournot duopoly where the technology transfer takes place from an innovative firm, which is relatively inefficient in terms of cost of production, to its cost-efficient rival. Interestingly, we find even a drastic technology is licensed and the optimal licensing arrangement always involves a two-part tariff (i.e. a fixed-fee plus a linear per unit output royalty). Under non-drastic innovation, the two-part tariff is optimal when the cost difference between the firms is moderate. Our framework also helps to bridge the gap between optimal licensing schemes for 'insider' and 'outsider' patentees. Copyright © 2010 The Economic Society of Australia.

Suggested Citation

  • Sougata Poddar & Uday Bhanu Sinha, 2010. "Patent Licensing from a High-Cost Firm to a Low-Cost Firm," The Economic Record, The Economic Society of Australia, vol. 86(274), pages 384-395, September.
  • Handle: RePEc:bla:ecorec:v:86:y:2010:i:274:p:384-395
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    Citations

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    Cited by:

    1. Fridtjof Anderson, 2014. "Licensing to a More Efficient Rival," Manchester School, University of Manchester, vol. 82(6), pages 653-676, December.
    2. Lu, Yuanzhu & Poddar, Sougata, 2014. "Patent licensing in spatial models," Economic Modelling, Elsevier, vol. 42(C), pages 250-256.
    3. repec:bla:manchs:v:85:y:2017:i:4:p:430-449 is not listed on IDEAS
    4. Tarun Kabiraj, 2016. "Tariffs, Licensing Contracts, and Consumers' Welfare," EcoMod2016 9149, EcoMod.
    5. Zhang, Huaige & Wang, Xuejun & Qing, Ping & Hong, Xianpei, 2016. "Optimal licensing of uncertain patents in a differentiated Stackelberg duopolistic competition market," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 215-229.
    6. Kabiraj, Tarun, 2012. "Tariff Induced Fee Licensing and Consumers’ Welfare," MPRA Paper 59256, University Library of Munich, Germany.
    7. Ghosh, Arghya & Saha, Souresh, 2015. "Price competition, technology licensing and strategic trade policy," Economic Modelling, Elsevier, vol. 46(C), pages 91-99.
    8. Gelves, Juan Alejandro & Heywood, John S., 2016. "How does a mixed ownership firm license a patent?," Economic Modelling, Elsevier, vol. 59(C), pages 278-284.
    9. Poddar, Sougata & Bouguezzi, Fehmi, 2011. "Patent licensing in spatial competition: Does pre-innovation cost asymmetry matter?," MPRA Paper 32764, University Library of Munich, Germany.
    10. Cuihong Fan & Byoung Heon Jun & Elmar G. Wolfstetter, 2017. "Per Unit vs. Ad Valorem Royalty Licensing," Discussion Paper Series 1706, Institute of Economic Research, Korea University.
    11. repec:bla:presci:v:96:y:2017:i::p:s207-s220 is not listed on IDEAS
    12. Jiyun Cao & Uday Bhanu Sinha, 2017. "Patent licensing in the presence of a differentiated good," Working papers 282, Centre for Development Economics, Delhi School of Economics.
    13. Cuihong Fan & Byoung Heon Jun & Elmar G. Wolfstetter, 2017. "Optimal Licensing of Technology in the Face of (Asymmetric) Competition," Discussion Paper Series 1705, Institute of Economic Research, Korea University.
    14. Wang, Kuang-Cheng Andy & Liang, Wen-Jung & Chou, Pin-Shu, 2013. "Patent licensing under cost asymmetry among firms," Economic Modelling, Elsevier, vol. 31(C), pages 297-307.
    15. Cuihong Fan & Byoung Heon Jun & Elmar G. Wolfstetter, 2016. "Optimal Licensing of Non-Drastic and (Super-)Drastic Innovations: The Case of the Inside Patent Holder," Discussion Paper Series 1610, Institute of Economic Research, Korea University.
    16. Jiyun Cao & Arijit Mukherjee, 2014. "Market Power of the Input Supplier, Technology Transfer and Consumer Welfare," CESifo Working Paper Series 5093, CESifo Group Munich.
    17. repec:eee:transe:v:109:y:2018:i:c:p:239-260 is not listed on IDEAS
    18. Sinha, Uday Bhanu, 2016. "Optimal value of a patent in an asymmetric Cournot duopoly market," Economic Modelling, Elsevier, vol. 57(C), pages 93-105.
    19. Kabiraj, Abhishek & Kabiraj, Tarun, 2017. "Tariff induced licensing contracts, consumers’ surplus and welfare," Economic Modelling, Elsevier, vol. 60(C), pages 439-447.
    20. Ray-Yun Chang & Yan-Shu Lin & Jin-Li Hu, 2015. "Mixed Competition and Patent Licensing," Australian Economic Papers, Wiley Blackwell, vol. 54(4), pages 229-249, December.
    21. Chen, Hsiu-Li & Hwang, Hong & Mukherjee, Arijit & Shih, Pei-Cyuan, 2016. "Tariffs, technology licensing and adoption," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 234-240.
    22. Chen, Yi-Wen & Yang, Ya-Po & Wang, Leonard F.S. & Wu, Shih-Jye, 2014. "Technology licensing in mixed oligopoly," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 193-204.

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