Per-Unit Royalty vs Fixed Fee: The Case of Weak Patents
This paper explores a licensor's choice between charging a per-unit royalty or a fixed fee when her innovation is covered by a weak patent, i.e. a patent that is likely to be invali- dated by a court if challenged. Using a general model where the nature of competition is not speci ed, we show that the patent holder prefers to use a per-unit royalty scheme if the strategic e¤ect of an increase in a potential licensee's unit cost on the aggregate equi- librium pro t is positive. To show the mildness of the latter condition, we establish that it holds in a Cournot (resp. Bertrand) oligopoly with homegenous (resp. heterogenous) products under very general assumptions on the demands faced by rms. As a byproduct of our analysis, we contribute to the oligopoly literature by o¤ering some new insights of independent interest regarding the e¤ects of cost variations on Cournot and Bertrand equilibria.
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- Macho-Stadler, Ines & Martinez-Giralt, Xavier & David Perez-Castrillo, J., 1996.
"The role of information in licensing contract design,"
Elsevier, vol. 25(1), pages 43-57, January.
- Macho, I. & Martinez-Giralt, X. & Perez-Castrillo, D., 1993. "The Role of Information in Licensing Contract Design," UFAE and IAE Working Papers 216.93, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Inés MACHO-STADLER & David PEREZ-CASTRILLO, 1991. "Contrats de licences et asymétrie d'information," Annales d'Economie et de Statistique, ENSAE, issue 24, pages 189-208.
- Fevrier, Philippe & Linnemer, Laurent, 2004. "Idiosyncratic shocks in an asymmetric Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 835-848, June.
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