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Patent Licensing with Bertrand Competitors

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  • Stefano Colombo
  • Luigi Filippini

Abstract

type="main"> This paper analyses an optimal two-part licensing scheme based on ad valorem royalties within a differentiated Bertrand duopoly where the innovator is also the downstream producer, and compares it with the optimal two-part per-unit royalty mechanism. After showing that the optimal two-part ad valorem licensing scheme reduces to a pure ad valorem royalty scheme, we show that per-unit contracts are typically preferred to ad valorem contracts by the patentee, as, under price competition, the per-unit royalty has a stronger strategic effect than the ad valorem royalty. In contrast, welfare is higher under the ad valorem contract than under the per-unit mechanism.

Suggested Citation

  • Stefano Colombo & Luigi Filippini, 2015. "Patent Licensing with Bertrand Competitors," Manchester School, University of Manchester, vol. 83(1), pages 1-16, January.
    • Handle: RePEc:bla:manchs:v:83:y:2015:i:1:p:1-16
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    Cited by:

    1. Colombo, Stefano & Filippini, Luigi, 2014. "Licensing and innovation: A comment," Economics Letters, Elsevier, vol. 125(3), pages 353-356.
    2. Din, Hong-Ren & Sun, Chia-Hung, 2020. "Welfare improving licensing with endogenous choice of prices versus quantities," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    3. Swapnendu Banerjee & Arijit Mukherjee & Sougata Poddar, 2023. "Optimal patent licensing—Two or three‐part tariff," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(3), pages 624-648, June.
    4. Stefano Colombo & Siyu Ma & Debapriya Sen & Yair Tauman, 2021. "Equivalence between fixed fee and ad valorem profit royalty," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(5), pages 1052-1073, October.
    5. Montinaro, Marta & Pal, Rupayan & Scrimitore, Marcella, 2020. "Per Unit and Ad Valorem Royalties in a Patent Licensing Game," FACTS: Firms And Cities Towards Sustainability 307305, Fondazione Eni Enrico Mattei (FEEM) > FACTS: Firms And Cities Towards Sustainability.
    6. Stefano Colombo & Luigi Filippini, 2015. "Patent Licensing with Bertrand Competitors," Manchester School, University of Manchester, vol. 83(1), pages 1-16, January.
    7. Chin-Sheng Chen, 2017. "Endogenous Market Structure and Technology Licensing," The Japanese Economic Review, Japanese Economic Association, vol. 68(1), pages 115-130, March.
    8. Stefano Colombo & Luigi Filippini, 2016. "Revenue royalties," Journal of Economics, Springer, vol. 118(1), pages 47-76, May.
    9. Yan, Qingyou & Yang, Le, 2018. "Optimal licensing in a differentiated Bertrand market under uncertain R&D outcomes and technology spillover," Economic Modelling, Elsevier, vol. 68(C), pages 117-126.
    10. Ma, Siyu & Sen, Debapriya & Tauman, Yair, 2022. "Optimal patent licensing: from three to two part tariffs," MPRA Paper 111624, University Library of Munich, Germany.
    11. Siyu Ma & Yair Tauman, 2021. "Licensing of a New Product Innovation with Risk Averse Agents," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(1), pages 79-102, August.
    12. Gerard Llobet & Jorge Padilla, 2016. "The Optimal Scope of the Royalty Base in Patent Licensing," Journal of Law and Economics, University of Chicago Press, vol. 59(1), pages 45-73.
    13. Sen, Debapriya & Tauman, Yair, 2018. "Patent licensing in a Cournot oligopoly: General results," Mathematical Social Sciences, Elsevier, vol. 96(C), pages 37-48.
    14. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    15. John Heywood & Zheng Wang, 2015. "How to license a transport innovation," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 55(2), pages 485-500, December.
    16. Heywood, John S. & Li, Jianpei & Ye, Guangliang, 2014. "Per unit vs. ad valorem royalties under asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 38-46.
    17. Siyu Ma & Debapriya Sen & Yair Tauman, 2024. "Optimal patent licensing: from three to two part tariffs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(4), pages 1233-1273, December.
    18. Stefano Colombo & Luigi Filippini & Debapriya Sen, 2023. "Patent Licensing and Capacity in a Cournot Model," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(1), pages 45-62, February.
    19. Li, Hai & Qing, Qiankai & Wang, Juan & Hong, Xianpei, 2021. "An analysis of technology licensing and parallel importation under different market structures," European Journal of Operational Research, Elsevier, vol. 289(1), pages 132-143.
    20. Stefano Colombo, 2015. "Licensing Under Bertrand Competition Revisited," Australian Economic Papers, Wiley Blackwell, vol. 54(1), pages 38-42, March.
    21. Chin-Sheng Chen, 2017. "Endogenous Market Structure and Technology Licensing," The Japanese Economic Review, Springer, vol. 68(1), pages 115-130, March.
    22. San Martín Lizarralde, Marta & Saracho de la Torre, Ana Isabel, 2012. "Two-part tariff licensing mechanisms," IKERLANAK http://www-fae1-eao1-ehu-, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    23. 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.

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    JEL classification:

    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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