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The Role of Fixed Fee and Royalty in Patent Licensing

Author

Listed:
  • Sougata Poddar

    () (National University of Singapore)

  • Uday Bhanu Sinha

    () (Indian Statistical Institute)

Abstract

We consider a monopolistic screening model of patent licensing. There is one patentee and one licensee and the patentee wishes to sell a patent of cost reducing technology to the licensee. The patentee is an outsider and the licensee is the only firm in the product market. The licensee possesses private information about the market demand which is unknown to the patentee except for some prior belief about it. In this scenario, we find the linear optimal licensing contract.

Suggested Citation

  • 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.
  • Handle: RePEc:nus:nusewp:wp0211
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    File URL: http://www.fas.nus.edu.sg/ecs/pub/wp/wp0211.pdf
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    References listed on IDEAS

    as
    1. Choi, Jay Pil, 2001. "Technology transfer with moral hazard," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 249-266, January.
    2. 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.
    3. Nancy T. Gallini & Brian D. Wright, 1990. "Technology Transfer under Asymmetric Information," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 147-160, Spring.
    4. Beggs, A. W., 1992. "The licensing of patents under asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 10(2), pages 171-191, June.
    5. 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.
    6. Marie Thursby & Richard Jensen, 2001. "Proofs and Prototypes for Sale: The Licensing of University Inventions," American Economic Review, American Economic Association, vol. 91(1), pages 240-259, March.
    7. 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.
    8. Morton I. Kamien & Yair Tauman, 1986. "Fees Versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 471-491.
    9. Jack High (ed.), 2001. "Competition," Books, Edward Elgar Publishing, number 1751, April.
    10. Bousquet, Alain & Cremer, Helmuth & Ivaldi, Marc & Wolkowicz, Michel, 1998. "Risk sharing in licensing," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 535-554, September.
    11. Kamien, Morton I., 1992. "Patent licensing," Handbook of Game Theory with Economic Applications,in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 11, pages 331-354 Elsevier.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Sougata Poddar & Uday Bhanu Sinha, 2004. "On Patent Licensing in Spatial Competition," The Economic Record, The Economic Society of Australia, vol. 80(249), pages 208-218, June.
    2. Antelo, Manel & Antonio, Sampayo, 2017. "Licensing contracts and the number of licenses under screening," MPRA Paper 77252, University Library of Munich, Germany.
    3. Eberhard Feess & Michael Hoeck & Oliver Lorz, 2009. "International Technology Transfers and Competition ," Review of International Economics, Wiley Blackwell, vol. 17(5), pages 1038-1052, November.
    4. Arijit Mukherjee, 2002. "Licensing under Asymmetric information," Industrial Organization 0211007, EconWPA.
    5. Zhang, Huaige & Wang, Xuejun & Qing, Ping & Hong, Xianpei, 2016. "Optimal licensing of uncertain patents in a differentiated Stackelberg duopolistic competition market," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 215-229.
    6. Gordanier, John & Miao, Chun-Hui, 2011. "On the duration of technology licensing," International Journal of Industrial Organization, Elsevier, vol. 29(6), pages 755-765.
    7. Mukherjee, Arijit, 2010. "Licensing a new product: Fee vs. royalty licensing with unionized labor market," Labour Economics, Elsevier, vol. 17(4), pages 735-742, August.
    8. Rabah Amir & David Encaoua & Yassine Lefouili, 2011. "Per-Unit Royalty vs Fixed Fee: The Case of Weak Patents," Working Papers halshs-00595493, HAL.
    9. repec:wsi:igtrxx:v:12:y:2010:i:01:n:s0219198910002490 is not listed on IDEAS
    10. Xue, Minggao & Su, Lili, 2011. "Licensing to a durable-good duopoly in patent litigation," Economic Modelling, Elsevier, vol. 28(3), pages 1186-1194, May.
    11. Arijit Mukherjee, "undated". "Technology licensing under convex costs," Discussion Papers 10/05, University of Nottingham, School of Economics.
    12. 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.
    13. Bagchi, Aniruddha & Mukherjee, Arijit, 2014. "Technology licensing in a differentiated oligopoly," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 455-465.
    14. Manel Antelo, 2010. "Screening vs. signaling in technology licensing," Economic Working Papers at Centro de Estudios Andaluces E2010/05, Centro de Estudios Andaluces.
    15. Sen, Debapriya, 2005. "Fee versus royalty reconsidered," Games and Economic Behavior, Elsevier, vol. 53(1), pages 141-147, October.

    More about this item

    Keywords

    licensing; fixed fee; royalty; adverse selection;

    JEL classification:

    • 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
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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