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Patent licensing with spillovers

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  • Aoki, Reiko
  • Tauman, Yair

Abstract

The purpose of this paper is to study the effect of spillover on extent of licensing when cost reducing innovation is introduced and licensed to a number of oligopolistic firms. We characterize the equilibrium number of licenses that are sold through an auction. An increase in the number of licenses has two effects. First, it increases the competition between the licensees. Second, due to spillover, the non-licensees become more efficient contributing to even more competition. We find that despite these effects, a patentee of a significant innovation will sell more licenses when there is spillover than without spillover thereby inducing even more competition. In this case, consumer surplus will be greater with spillover. However, if the innovation is less significant, then the patentee will sell less licenses with spillover thereby restrict competition. In this case the market price will be higher and the consumer surplus will be smaller.
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Suggested Citation

  • Aoki, Reiko & Tauman, Yair, 2001. "Patent licensing with spillovers," Economics Letters, Elsevier, vol. 73(1), pages 125-130, October.
  • Handle: RePEc:eee:ecolet:v:73:y:2001:i:1:p:125-130
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    References listed on IDEAS

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    1. Morton I. Kamien & Yair Tauman, 1986. "Fees Versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 471-491.
    2. Michael L. Katz & Carl Shapiro, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 567-589.
    3. Aoki, Reiko & Tauman, Yair, 2001. "Patent licensing with spillovers," Economics Letters, Elsevier, vol. 73(1), pages 125-130, October.
    4. Janusz A. Ordover, 1991. "A Patent System for Both Diffusion and Exclusion," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 43-60, Winter.
    5. Kamien, Morton I., 1992. "Patent licensing," Handbook of Game Theory with Economic Applications,in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 11, pages 331-354 Elsevier.
    6. Kamien, Morton I. & Oren, Shmuel S. & Tauman, Yair, 1992. "Optimal licensing of cost-reducing innovation," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 483-508.
    7. Muto, Shigeo, 1987. "Possibility of relicensing and patent protection," European Economic Review, Elsevier, vol. 31(4), pages 927-945, June.
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    Citations

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    Cited by:

    1. Giebe, Thomas & Wolfstetter, Elmar G., 2006. "License Auctions with Royalty Contracts for Losers," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 96, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. Aoki, Reiko & Small, John, 2004. "Compulsory licensing of technology and the essential facilities doctrine," Information Economics and Policy, Elsevier, vol. 16(1), pages 13-29, March.
    3. repec:ebl:ecbull:v:15:y:2005:i:15:p:1-10 is not listed on IDEAS
    4. Schmitz, Patrick W., 2007. "Exclusive versus non-exclusive licensing strategies and moral hazard," Economics Letters, Elsevier, vol. 97(3), pages 208-214, December.
    5. Aoki, Reiko & Tauman, Yair, 2001. "Patent licensing with spillovers," Economics Letters, Elsevier, vol. 73(1), pages 125-130, October.
    6. repec:sae:ausman:v:42:y:2017:i:4:p:692-707 is not listed on IDEAS
    7. Richard Dutu & Benoit Julien, 2009. "Technology Licensing and Grantbacks under Hidden Information," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(4), pages 561-578, December.
    8. Giebe, Thomas & Wolfstetter, Elmar, 2008. "License auctions with royalty contracts for (winners and) losers," Games and Economic Behavior, Elsevier, vol. 63(1), pages 91-106, May.
    9. Elisabetta Ottoz, 2005. "Technological spillover and the time distribution of licenses," Economics Bulletin, AccessEcon, vol. 15(15), pages 1-10.

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