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Optimal two-part tariff licensing in a Stackelberg duopoly

Author

Listed:
  • Masashi Umezawa

    (Department of Business Economics, School of Management, Tokyo University of Science)

Abstract

This article studies the patent licensing of a cost-reducing innovation by an incumbent innovator in a Stackelberg duopoly. We show that two-part ad valorem profit royalty licensing, which is verified to be equal to pure ad valorem profit royalties, is superior to both two-part per-unit royalty and two-part ad valorem revenue royalty licensing offers for the patentee if the innovation is non-drastic and relatively small. Then, both consumer and social welfare are lower under ad valorem profit royalty licensing than under the other two-part royalty licensing offer, as well as under no licensing. incumbent innovator in a Stackelberg duopoly. We show that two-part ad valorem profit royalty licensing, which is verified to be equal to pure ad valorem profit royalties, is superior to both two-part per-unit royalty and two-part ad valorem revenue royalty licensing offers for the patentee if the innovation is non-drastic and relatively small. Then, both consumer and social welfare are lower under ad valorem profit royalty licensing than under the other two-part royalty licensing offer, as well as under no licensing.

Suggested Citation

  • Masashi Umezawa, 2022. "Optimal two-part tariff licensing in a Stackelberg duopoly," Economics Bulletin, AccessEcon, vol. 42(2), pages 629-642.
    • Handle: RePEc:ebl:ecbull:eb-21-00701
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    File URL: http://www.accessecon.com/Pubs/EB/2022/Volume42/EB-22-V42-I2-P52.pdf
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    More about this item

    Keywords

    Incumbent innovator; Licensing; Royalty; Stackelberg duopoly; Two-part tariff;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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