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Sequential Innovation and the Duration of Technology Licensing

Author

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  • Gordanier, John
  • Chun-Hui, Miao

Abstract

We model an innovator's choice of payment scheme and duration as a joint decision in a multi-period licensing game with potential sequential innovations and some irreversibility of technology transfer. We find that it may be optimal to license the innovation for less than the full length of the patent and that royalty contracts can be used to overcome a time-consistency problem faced by the innovator. Our results suggest that licensing contracts based on royalty have a longer duration than fixed-fee licenses and are more likely to be used in industries where sequential innovations are frequent.

Suggested Citation

  • Gordanier, John & Chun-Hui, Miao, 2009. "Sequential Innovation and the Duration of Technology Licensing," MPRA Paper 16882, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:16882
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    More about this item

    Keywords

    Innovation; Licensing; Patent; Royalty; Technology Leakage; Time Consistency.;

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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