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Licensing contracts and the number of licenses under screening

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  • Antelo, Manel
  • Antonio, Sampayo

Abstract

This paper examines the licensing of an innovation—by a patent holder to one or more users—when the innovation’s value (high or low) is known, after the contract is signed, by each user. In this setup, we analyze the patent holder’s joint decision concerning the number of licenses and the type of contracts. Our first main finding is that, depending on how uncertain is the efficiency of users exploiting the innovation, both shut-down contracts and screening contracts can emerge in equilibrium. Second, shut-down contracts amount to fixed fees under exclusive licensing but are two-part contracts under non-exclusive licensing. Third, there is distorted production at the bottom of the innovation value’s distribution under exclusive licensing as well as distortion at both the bottom and the top of that distribution under non-exclusive licensing. Fourth, asymmetric information favors the latter (i.e., issuing multiple licenses) except when the patent holder uses a screening contract, since then the need to distort production at both the bottom and the top renders non-exclusive licensing less profitable. Our final result is that the number of licenses issued by the patent holder is more likely to maximize aggregate surplus under asymmetric information than under symmetric information.

Suggested Citation

  • Antelo, Manel & Antonio, Sampayo, 2017. "Licensing contracts and the number of licenses under screening," MPRA Paper 77252, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:77252
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    References listed on IDEAS

    as
    1. Gallardo, R. Karina & McCluskey, Jill J. & Rickard, Bradley J. & Akhundjanov, Sherzod B., 2016. "Assessing Innovator and Grower Profit Potential under Different New Plant Variety Commercialization Strategies," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235940, Agricultural and Applied Economics Association.
    2. Toker Doganoglu & Firat Inceoglu, 2014. "Licensing of a Drastic Innovation with Product Differentiation," Manchester School, University of Manchester, vol. 82(3), pages 296-321, June.
    3. Manel Antelo & Antonio Sampayo, 2017. "On the Number of Licenses with Signalling," Manchester School, University of Manchester, vol. 85(6), pages 635-660, December.
    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. Francisco Caballero-sanz & Rafael Moner-colonques & Jose Sempere-monerris, 2005. "Licensing policies for a new product," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 14(8), pages 697-713.
    7. Maria Pluvia Zuniga & Dominique Guellec, 2009. "Who Licenses out Patents and Why?: Lessons from a Business Survey," OECD Science, Technology and Industry Working Papers 2009/5, OECD Publishing.
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    More about this item

    Keywords

    exclusive and non-exclusive licensing; symmetric and asymmetric information; screening; fixed-fee and two-part contracts; welfare analysis;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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