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Welfare Reducing Licensing

  • Ramón Faulí-Oller

    ()

    (Universidad de Alicante)

  • Joel Sandonís

    ()

    (Universidad de Alicante)

Registered author(s):

    In this paper, we characterize situations where licensing an innovation to a rival firm using two-part tariff contracts (a fixed fee plus a linear per unit of output royalty) reduces social welfare. We show that it occurs if and only if i) the goods are close enough substitutes, ii) the innovation is large enough but not drastic and iii) the firms compete in prices. Moreover, we show that, regardless of the type of competition, first, the optimal contract always includes a positive royalty and, second, even drastic innovations are licensed whenever the goods are not homogeneous.

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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2000-12.pdf
    File Function: Fisrt version / Primera version, 2000
    Download Restriction: no

    Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2000-12.

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    Length: 20 pages
    Date of creation: Jun 2000
    Date of revision:
    Publication status: Published by Ivie
    Handle: RePEc:ivi:wpasad:2000-12
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    1. Erutku, C. & Richelle, Y., 2000. "Optimal Licensing Contracts and the Value of a Patent," Cahiers de recherche 2000-07, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    2. ERUTKU, C. & RICHELLE, Yves, 2000. "Optimal Licensing Contracts and the Value of a Patent," Cahiers de recherche 2000-07, Universite de Montreal, Departement de sciences economiques.
    3. Macho-Stadler, Ines & Martinez-Giralt, Xavier & David Perez-Castrillo, J., 1996. "The role of information in licensing contract design," Research Policy, Elsevier, vol. 25(1), pages 43-57, January.
    4. Morton I. Kamien & Yair Tauman, 1984. "Fees Versus Royalties and the Private Value of a Patent," Discussion Papers 583, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Katz, Michael L & Shapiro, Carl, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 567-89, August.
    6. Vives, Xavier, 1985. "On the efficiency of Bertrand and Cournot equilibria with product differentation," Journal of Economic Theory, Elsevier, vol. 36(1), pages 166-175, June.
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