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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.

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
    DOI: 10.1111/j.1475-4932.2010.00633.x
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    References listed on IDEAS

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