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Technology licensing under convex costs

  • Arijit Mukherjee

The technology licensing literature has completely dominated by the assumption of constant returns to scale technology, while the implications of convex costs have been discussed extensively in the Industrial Organization literature or in the Microeconomics literature, in general. We show that an “outside innovator” and the society may prefer royalty licensing compared to auction (or fixed-fee licensing) under convex costs. There can also be conflicting interests between the innovator and the society about the preferred licensing contract. However, the consumers always prefer auction. It follows from our analysis that a combination of royalty and fixedfee can dominate both auction (of fixed-fee licensing) and royalty only licensing.

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Paper provided by University of Nottingham, School of Economics in its series Discussion Papers with number 10/05.

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Handle: RePEc:not:notecp:10/05
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  1. Choi, Jay Pil, 1996. "Technology Transfer with Moral Hazard," Economics Series 22, Institute for Advanced Studies.
  2. Sougata Poddar & Uday Bhanu Sinha, 2005. "Patent Licensing from High-Cost Firm to Low-Cost Firm," Departmental Working Papers wp0503, National University of Singapore, Department of Economics.
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  7. repec:ebl:ecbull:v:12:y:2007:i:3:p:1-6 is not listed on IDEAS
  8. Sougata Poddar & Uday Bhanu Sinha, 2002. "The Role of Fixed Fee and Royalty in Patent Licensing," Departmental Working Papers wp0211, National University of Singapore, Department of Economics.
  9. Kamien, Morton I & Tauman, Yair, 1986. "Fees versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 471-91, August.
  10. Henry Wang, X., 2002. "Fee versus royalty licensing in a differentiated Cournot duopoly," Journal of Economics and Business, Elsevier, vol. 54(2), pages 253-266.
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  12. 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.
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  15. Fauli-Oller, Ramon & Sandonis, Joel, 2002. "Welfare reducing licensing," Games and Economic Behavior, Elsevier, vol. 41(2), pages 192-205, November.
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  23. Kamien, Morton I & Tauman, Yair, 2002. "Patent Licensing: The Inside Story," Manchester School, University of Manchester, vol. 70(1), pages 7-15, January.
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