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Licensing policies for a new product


  • Francisco Caballero-sanz
  • Rafael Moner-colonques
  • Jose Sempere-monerris


This paper studies licensing policies for the owner of a new product and addresses their welfare impact in the assessment of market failures. We show that the best licensing policy for the patent holder is fixed fee licensing with an exclusive territory clause. Consumers are also better off with fixed fees but do not prefer the exclusive territory clause. Social welfare is higher under exclusive territories when fixed costs are not too large. As for efficiency, the number of licences in the private market equilibrium falls short of the socially optimal solution. Our analysis discloses that (i) any policy measures aimed at enhancing the diffusion of technology, in terms of the number of licences, would be welcomed and, (ii) the permissive treatment received by licensing agreements with exclusive territories is justified.

Suggested Citation

  • Francisco Caballero-sanz & Rafael Moner-colonques & Jose Sempere-monerris, 2005. "Licensing policies for a new product," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 14(8), pages 697-713.
  • Handle: RePEc:taf:ecinnt:v:14:y:2005:i:8:p:697-713 DOI: 10.1080/09512740500063915

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    References listed on IDEAS

    1. Pedro Mendi, 2005. "The Structure of Payments in Technology Transfer Contracts: Evidence from Spain," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(2), pages 403-429, June.
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    5. Kamien, Morton I. & Tauman, Yair & Zang, Israel, 1988. "Optimal license fees for a new product," Mathematical Social Sciences, Elsevier, vol. 16(1), pages 77-106, August.
    6. Joanna Poyago-Theotoky & John Beath & Donald S. Siegel, 2002. "Universities and Fundamental Research: Reflections on the Growth of University--Industry Partnerships," Oxford Review of Economic Policy, Oxford University Press, vol. 18(1), pages 10-21, Spring.
    7. Martin, Stephen & Scott, John T., 2000. "The nature of innovation market failure and the design of public support for private innovation," Research Policy, Elsevier, vol. 29(4-5), pages 437-447, April.
    8. 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.
    9. Anand, Bharat N & Khanna, Tarun, 2000. "The Structure of Licensing Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 48(1), pages 103-135, March.
    10. Jensen, Richard A. & Thursby, Jerry G. & Thursby, Marie C., 2003. "Disclosure and licensing of University inventions: 'The best we can do with the s**t we get to work with'," International Journal of Industrial Organization, Elsevier, vol. 21(9), pages 1271-1300, November.
    11. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July.
    12. Greenhut,Melvin L. & Norman,George & Hung,Chao-Shun, 1987. "The Economics of Imperfect Competition," Cambridge Books, Cambridge University Press, number 9780521305525, March.
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    Cited by:

    1. Manel Antelo, 2009. "On contract duration of royalty licensing contracts," Spanish Economic Review, Springer;Spanish Economic Association, vol. 11(4), pages 301-301, December.
    2. Changying Li & Junmei Wang, 2010. "Licensing a Vertical Product Innovation," The Economic Record, The Economic Society of Australia, vol. 86(275), pages 517-527, December.
    3. Antelo, Manel & Antonio, Sampayo, 2017. "Licensing contracts and the number of licenses under screening," MPRA Paper 77252, University Library of Munich, Germany.
    4. 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.


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