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- Title
Licensing a Vertical Product Innovation.
- Authors
CHANGYING LI; JUNMEI WANG
- Abstract
This paper studies the case where an outside patent holder licenses its vertical product innovation to two Cournot competitors. It is found that, under a fixed-fee contract, the patent holder prefers exclusive licensing. However, under a royalty or two-part tariff contract, the patent holder favours non-exclusive licensing. Moreover, in contrast to the standard argument by Kamien and Tauman, we show that, from the perspective of the patentee, royalty licensing can be superior to fixed-fee licensing, if the degree of innovation is small. Two-part tariff licensing generates a monopoly outcome in the final market and hence reduces both consumer surplus and social welfare, if the innovation is low.
- Subjects
PATENTS; LICENSE agreements; TARIFF; TECHNOLOGICAL innovations; PUBLIC welfare
- Publication
Economic Record, 2010, Vol 86, Issue 275, p517
- ISSN
0013-0249
- Publication type
Article
- DOI
10.1111/j.1475-4932.2010.00630.x