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Royalty licensing in vertically related markets

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  • Bakaouka, Elpiniki

Abstract

We compare two royalty licensing contracts: per-unit and ad valorem in a vertical market. The licensor always prefers a per-unit over an ad valorem royalty contract. Licensing has a greater positive impact on both consumer and total welfare under an ad valorem royalty.

Suggested Citation

  • Bakaouka, Elpiniki, 2025. "Royalty licensing in vertically related markets," Economics Letters, Elsevier, vol. 253(C).
    • Handle: RePEc:eee:ecolet:v:253:y:2025:i:c:s0165176525002095
    DOI: 10.1016/j.econlet.2025.112372
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    References listed on IDEAS

    as
    1. Morton I. Kamien & Yair Tauman, 1986. "Fees Versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 471-491.
    2. Antelo, Manel & Bru, Lluís, 2023. "Licensing a product innovation from an external innovator to a Stackelberg duopoly," MPRA Paper 117542, University Library of Munich, Germany.
    3. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July.
    4. Judy Hsu & Longhua Liu & X. Henry Wang & Chenhang Zeng, 2019. "Ad Valorem Versus Per‐unit Royalty Licensing in a Cournot Duopoly Model," Manchester School, University of Manchester, vol. 87(6), pages 890-901, December.
    5. Bakaouka, Elpiniki & Milliou, Chrysovalantou, 2018. "Vertical licensing, input pricing, and entry," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 66-96.
    6. Anil Arya & Brian Mittendorf, 2006. "Enhancing Vertical Efficiency Through Horizontal Licensing," Journal of Regulatory Economics, Springer, vol. 29(3), pages 333-342, May.
    7. San Martín, Marta & Saracho, Ana I., 2016. "Patent strength and optimal two-part tariff licensing with a potential rival incorporating ad valorem royalties," Economics Letters, Elsevier, vol. 143(C), pages 28-31.
    8. Morton I. Kamien & Israel Zang, 1990. "The Limits of Monopolization Through Acquisition," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(2), pages 465-499.
    9. Niu, Shuai, 2013. "The equivalence of profit-sharing licensing and per-unit royalty licensing," Economic Modelling, Elsevier, vol. 32(C), pages 10-14.
    10. Elpiniki Bakaouka, 2024. "Horizontal licensing in vertically related markets," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 15(1), pages 57-94, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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    JEL classification:

    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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