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Optimal transfer of a quality-enhancing innovation in a vertical related market

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Listed:
  • Antelo, Manel
  • Bru, Lluís

Abstract

This paper examines the commercialization of an external, quality-enhancing (product) innovation within a vertically related market, comparing outright sale and licensing. Licensing may involve a royalty of per-unit or ad valorem type and potential adopters are two downstream firms that source a core input from a single upstream supplier. The analysis reveals that the patentholder’s incentive to license the innovation, particularly through per-unit royalties, outweighs that of an outright sale. This form of technology transfer, however, is shown to potentially reduce consumer and social welfare compared to the pre-innovation state, thus providing a rationale for public policy interventions aimed at restricting royalty-based technology transfer.

Suggested Citation

  • Antelo, Manel & Bru, Lluís, 2025. "Optimal transfer of a quality-enhancing innovation in a vertical related market," MPRA Paper 126850, University Library of Munich, Germany, revised Sep 2025.
    • Handle: RePEc:pra:mprapa:126850
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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