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Optimal Two-Part Tariff Licensing Contracts with Differentiated Goods and Endogenous R&D

Author

Listed:
  • Ramón Faulí-Oller

    () (Universidad de Alicante)

  • Joel Sandonís

    () (Universidad de Alicante)

Abstract

In this paper we get the optimal two-part tariff contract for the licensing of a cost reducing innovation to a differentiated goods industry of a general size. We analyze the cases where the patentee is an independent laboratory or an incumbent firm. We show that, regardless of the number of firms, the degree of product differentiation and the type of patentee, the innovation is licensed to all firms. Moreover, we endogenize R&D investment and get that an internal patentee invests more (less) in R&D when the technological opportunity is low (high). In this paper we get the optimal two-part tariff contract for the licensing of a cost reducing innovation to a differentiated goods industry of a general size. We analyze the cases where the patentee is an independent laboratory or an incumbent firm. We show that, regardless of the number of firms, the degree of product differentiation and the type of patentee, the innovation is licensed to all firms. Moreover, we endogenize R&D investment and get that an internal patentee invests more (less) in R&D when the technological opportunity is low (high).

Suggested Citation

  • Ramón Faulí-Oller & Joel Sandonís, 2008. "Optimal Two-Part Tariff Licensing Contracts with Differentiated Goods and Endogenous R&D," Working Papers. Serie AD 2008-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  • Handle: RePEc:ivi:wpasad:2008-12
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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2008-12.pdf
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    References listed on IDEAS

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    1. 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.
    2. Sen, Debapriya & Tauman, Yair, 2007. "General licensing schemes for a cost-reducing innovation," Games and Economic Behavior, Elsevier, vol. 59(1), pages 163-186, April.
    3. Chun-Hsiung Liao & Debapriya Sen, 2005. "Subsidy In Licensing: Optimality And Welfare Implications," Manchester School, University of Manchester, vol. 73(3), pages 281-299, June.
    4. Can Erutku & Yves Richelle, 2007. "Optimal Licensing Contracts and the Value of a Patent," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(2), pages 407-436, June.
    5. Kamien, Morton I. & Oren, Shmuel S. & Tauman, Yair, 1992. "Optimal licensing of cost-reducing innovation," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 483-508.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Neelanjan Sen, 2015. "Technology transfer and its effect on innovation," Economics Bulletin, AccessEcon, vol. 35(4), pages 2523-2534.
    2. Ray-Yun Chang & Yan-Shu Lin & Jin-Li Hu, 2015. "Mixed Competition and Patent Licensing," Australian Economic Papers, Wiley Blackwell, vol. 54(4), pages 229-249, December.
    3. Milliou, Chrysovalantou & Petrakis, Emmanuel, 2012. "Vertical integration, knowledge disclosure and decreasing rival's cost," UC3M Working papers. Economics we1213, Universidad Carlos III de Madrid. Departamento de Economía.

    More about this item

    Keywords

    patent licensing; two-part tariff contracts; R&D; product differentiation.;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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