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Bargaining and delay in patent licensing

Author

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  • MAULEON, Ana
  • VANNETELBOSCH, Vincent
  • VERGARI, Cecilia

Abstract

We consider a model of licensing of a non-drastic innovation in which the patent holder (an outside innovator) negotiates either up-front fixed fees or per-unit royal- ties with two firms producing horizontally differentiated brands and competing à la Cournot. We investigate how licensing schemes (fixed fee or per-unit royalty) and the number of licenses sold (exclusive licensing or complete technology diffusion) affect price agreements and delays in reaching an agreement. We show that the patent holder prefers to license by means of up-front fixed fees except if market competition is mild and the innovation size is small. Once there is private information about the relative bargaining power of the parties, the patent holder may prefer licensing by means of per-unit royalties even if market competition is strong. Moreover, the delay in reaching an agreement is greater whenever the patent holder chooses to negotiate up-front fixed fees instead of per-unit royalties.
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Suggested Citation

  • MAULEON, Ana & VANNETELBOSCH, Vincent & VERGARI, Cecilia, 2013. "Bargaining and delay in patent licensing," LIDAM Reprints CORE 2537, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:2537
    Note: In : International Journal of Economic Theory, 9(4), 279-302, 2013
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    References listed on IDEAS

    as
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    Cited by:

    1. Tatsuya Kitagawa & Yasushi Masuda & Masashi Umezawa, 2020. "Impact of technology development costs on licensing form in a differentiated Cournot duopoly," International Journal of Economic Theory, The International Society for Economic Theory, vol. 16(2), pages 153-166, June.
    2. Cecilia Vergari & Luigi Filippini, 2023. "Innovation Diffusion and Strategic Outside Option in a Bargaining Game," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 63(1), pages 41-71, August.
    3. Giorgos Stamatopoulos, 2021. "Bargaining over a license: A counterintuitive result," International Journal of Economic Theory, The International Society for Economic Theory, vol. 17(4), pages 471-478, December.
    4. Shin Kishimoto, 2020. "The welfare effect of bargaining power in the licensing of a cost-reducing technology," Journal of Economics, Springer, vol. 129(2), pages 173-193, March.

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    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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