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Licensing a new product with non-linear contracts


  • Can Erutku
  • Yves Richelle


This paper looks at a situation where a licensor owns a patent on a technology that allows the production of a new good. The licensor seeks to license its innovation to a set of producers that differ according to their marginal cost of producing an existing good. We show that the licensor is able to obtain the profit a monopolist would achieve by producing the new good. The equilibrium licensing contract specifies both a fixed fee and a royalty scheme based on the production of a licensee.

Suggested Citation

  • Can Erutku & Yves Richelle, 2006. "Licensing a new product with non-linear contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 932-947, August.
  • Handle: RePEc:cje:issued:v:39:y:2006:i:3:p:932-947

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    References listed on IDEAS

    1. Hansen, Wendy L & Prusa, Thomas J, 1996. "Cumulation and ITC Decision-Making: The Sum of the Parts Is Greater Than the Whole," Economic Inquiry, Western Economic Association International, vol. 34(4), pages 746-769, October.
    2. Thomas J. Prusa, 2001. "On the spread and impact of anti-dumping," Canadian Journal of Economics, Canadian Economics Association, vol. 34(3), pages 591-611, August.
    3. Benjamin Liebman, 2004. "ITC voting behavior on sunset reviews," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 140(3), pages 446-475, September.
    4. Irwin, Douglas A., 2003. "Causing problems? The WTO review of causation and injury attribution in US Section 201 cases," World Trade Review, Cambridge University Press, vol. 2(03), pages 297-325, November.
    5. Bruce A. Blonigen & Thomas J. Prusa, 2001. "Antidumping," NBER Working Papers 8398, National Bureau of Economic Research, Inc.
    6. Bruce A. Blonigen, 2005. "The Effects of," World Bank Economic Review, World Bank Group, vol. 19(3), pages 407-424.
    7. Moore, Michael O., 2005. ""Facts available" dumping allegations: when will foreign firms cooperate in antidumping petitions?," European Journal of Political Economy, Elsevier, vol. 21(1), pages 185-204, March.
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    Cited by:

    1. Rey, Patrick & Salant, David, 2012. "Abuse of dominance and licensing of intellectual property," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 518-527.
    2. 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.
    3. 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.

    More about this item

    JEL classification:

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


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