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Optimal Licensing Strategy: Royalty or Fixed Fee?


  • Andrea Fosfuri

    (Department of Business Administration, Universidad Carlos III de Madrid, Spain and CEPR, London, U.K.)

  • Esther Roca

    (ICADE, Spain)


Licensing a cost-reducing innovation through a royalty has been shown to be superior to licensing by means of a fixed fee for an incumbent licensor. This note shows that this result relies crucially on the assumption that the incumbent licensor can sell its cost-reducing inno-vation to all industry players. If, for any reason, only some competitors could be reached through a licensing contract, then a fixed fee might be optimally chosen.

Suggested Citation

  • Andrea Fosfuri & Esther Roca, 2004. "Optimal Licensing Strategy: Royalty or Fixed Fee?," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 3(1), pages 13-19, April.
  • Handle: RePEc:ijb:journl:v:3:y:2004:i:1:p:13-19

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    References listed on IDEAS

    1. Arora, Ashish & Fosfuri, Andrea, 2003. "Licensing the market for technology," Journal of Economic Behavior & Organization, Elsevier, vol. 52(2), pages 277-295, October.
    2. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July.
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    Cited by:

    1. Stefano Colombo & Luigi Filippini, 2013. "Fee versus royalty licensing in a Cournot duopoly model with a commitment of no production," Economics Bulletin, AccessEcon, vol. 33(3), pages 2122-2128.
    2. Mukherjee, Arijit, 2010. "Licensing a new product: Fee vs. royalty licensing with unionized labor market," Labour Economics, Elsevier, vol. 17(4), pages 735-742, August.
    3. Siddhartha Bandyopadhyay & Arijit Mukherjee, 2014. "R&D Cooperation with Entry," Manchester School, University of Manchester, vol. 82(1), pages 52-70, January.
    4. Arijit Mukherjee, "undated". "Technology licensing under convex costs," Discussion Papers 10/05, University of Nottingham, School of Economics.
    5. Sinha, Uday Bhanu, 2016. "Optimal value of a patent in an asymmetric Cournot duopoly market," Economic Modelling, Elsevier, vol. 57(C), pages 93-105.
    6. Richard Watt, 2014. "Licensing of copyright works in a bargaining model," Chapters,in: Handbook on the Economics of Copyright, chapter 6, pages 107-117 Edward Elgar Publishing.
    7. Chen, Yi-Wen & Yang, Ya-Po & Wang, Leonard F.S. & Wu, Shih-Jye, 2014. "Technology licensing in mixed oligopoly," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 193-204.
    8. Dawson Peter, 2013. "Royalty Rate Determination," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 8(1), pages 1-29, October.
    9. repec:ebl:ecbull:v:30:y:2010:i:1:p:20-31 is not listed on IDEAS
    10. Arijit Mukherjee & Yingyi Tsai, 2013. "Technology licensing under optimal tax policy," Journal of Economics, Springer, vol. 108(3), pages 231-247, April.
    11. Ming-Chung Chang, 2010. "Insider patent holder licensing in an oligopoly market with different cost structures: Fixed-fee, royalty, and auction," Economics Bulletin, AccessEcon, vol. 30(1), pages 20-31.
    12. Wang, Kuang-Cheng Andy & Liang, Wen-Jung & Chou, Pin-Shu, 2013. "Patent licensing under cost asymmetry among firms," Economic Modelling, Elsevier, vol. 31(C), pages 297-307.
    13. Bagchi, Aniruddha & Mukherjee, Arijit, 2014. "Technology licensing in a differentiated oligopoly," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 455-465.
    14. repec:bla:jecrev:v:68:y:2017:i:1:p:115-130 is not listed on IDEAS

    More about this item


    licensing contract; Cournot competition; strategic effects;

    JEL classification:

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


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