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Optimal Licensing Contracts and the Value of a Patent

Author

Listed:
  • Can Erutku
  • Yves Richelle

Abstract

"We extend Kamien and Tauman's (1986) analysis of the value of a patent. We find that an inventor can always design a fixed fee plus royalty contract such that his revenue is equal to the profit a monopoly endowed with the innovation could make on the market. This implies that the social value of a patent can be strictly negative whenever the patented innovation is of bad quality. We also explain why a principal can have an interest in using performance-based contracts although the principal and the agents are risk-neutral, information is symmetric, and agents' actions are verifiable." Copyright 2007, The Author(s) Journal Compilation (c) 2007 Blackwell Publishing.

Suggested Citation

  • Can Erutku & Yves Richelle, 2007. "Optimal Licensing Contracts and the Value of a Patent," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(2), pages 407-436, June.
  • Handle: RePEc:bla:jemstr:v:16:y:2007:i:2:p:407-436
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    Citations

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    Cited by:

    1. Maria Isabella Leone & Raffaele Oriani & Toke Reichstein, 2015. "How much are flexibility and uncertainty worth in patent licensing?," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 42(4), pages 371-394, December.
    2. Elias Carayannis & Igor Dubina & Alina Ilinova, 2015. "Licensing in the Context of Entrepreneurial University Activity: an Empirical Evidence and a Theoretical Model," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 6(1), pages 1-12, March.
    3. Manel Antelo, 2009. "On contract duration of royalty licensing contracts," Spanish Economic Review, Springer;Spanish Economic Association, vol. 11(4), pages 301-301, December.
    4. Matthieu Glachant & Yann Ménière, 2013. "Technology Diffusion with Learning Spillovers: Patent Versus Free Access," Manchester School, University of Manchester, vol. 81(5), pages 683-711, September.
    5. Toker Doganoglu & Firat Inceoglu, 2014. "Licensing of a Drastic Innovation with Product Differentiation," Manchester School, University of Manchester, vol. 82(3), pages 296-321, June.
    6. Kitagawa, Tatsuya & Masuda, Yasushi & Umezawa, Masashi, 2014. "Patent strength and optimal two-part tariff licensing with a potential rival," Economics Letters, Elsevier, vol. 123(2), pages 227-231.
    7. Meniere, Yann & Parlane, Sarah, 2010. "Decentralized licensing of complementary patents: Comparing the royalty, fixed-fee and two-part tariff regimes," Information Economics and Policy, Elsevier, vol. 22(2), pages 178-191, May.
    8. Pierre Régibeau & Katharine Rockett, 2010. "INNOVATION CYCLES AND LEARNING AT THE PATENT OFFICE: DOES THE EARLY PATENT GET THE DELAY? -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 58(2), pages 222-246, June.
    9. Ramon Faulí-Oller & Xulia González & Joel Sandonís, 2013. "Optimal Two-Part Tariff Licensing Contracts With Differentiated Goods And Endogenous R&D," Manchester School, University of Manchester, vol. 81(5), pages 803-827, September.
    10. Arijit Mukherjee, 2014. "Licensing under convex costs," Journal of Economics, Springer, vol. 111(3), pages 289-299, April.
    11. Muthers, Johannes & Inceoglu, Firat & Doganoglu, Toker, 2013. "Licensing with Free Entry," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79757, Verein für Socialpolitik / German Economic Association.
    12. Joel Sandonís Díez & Javier M. López Cuñat, 2015. "Upstream incentives to encourage downstream competition in a vertically separated industry," Working Papers. Serie AD 2015-04, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    13. Zhao, Dan & Chen, Hongmin & Hong, Xianpei & Liu, Jingfang, 2014. "Technology licensing contracts with network effects," International Journal of Production Economics, Elsevier, vol. 158(C), pages 136-144.
    14. San Martín Lizarralde, Marta & Saracho de la Torre, Ana Isabel, 2012. "Two-part tariff licensing mechanisms," IKERLANAK Ikerlanak;2012-59, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    15. Xue, Minggao & Su, Lili, 2011. "Licensing to a durable-good duopoly in patent litigation," Economic Modelling, Elsevier, vol. 28(3), pages 1186-1194, May.
    16. Marta San Martín & Ana I. Saracho, 2015. "Optimal Two-part Tariff Licensing Mechanisms," Manchester School, University of Manchester, vol. 83(3), pages 288-306, June.
    17. Jelnov, Artyom & Tauman, Yair, 2009. "The private value of a patent: A cooperative approach," Mathematical Social Sciences, Elsevier, vol. 58(1), pages 84-97, July.
    18. Debapriya Sen & Giorgos Stamatopoulos, 2009. "Technology Transfer Under Returns To Scale," Manchester School, University of Manchester, vol. 77(3), pages 337-365, June.
    19. C. Erutku & A. Priegue Freire & Y. Richelle, 2007. "Licensing Innovations with Exclusive Contracts," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 31(4), pages 261-273, December.
    20. repec:eee:proeco:v:193:y:2017:i:c:p:502-513 is not listed on IDEAS
    21. Takeshi Ebina & Shin Kishimoto, 2012. "How to license a public licensor's technology to an asymmetric duopoly," Economics and Business Letters, Oviedo University Press, vol. 1(2), pages 16-26.
    22. L. Filippini & C. Vergari, 2012. "Product innovation in a vertically differentiated model," Working Papers wp833, Dipartimento Scienze Economiche, Universita' di Bologna.
    23. Kishimoto, Shin & Watanabe, Naoki & Muto, Shigeo, 2011. "Bargaining outcomes in patent licensing: Asymptotic results in a general Cournot market," Mathematical Social Sciences, Elsevier, vol. 61(2), pages 114-123, March.

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