License auctions with royalty contracts for (winners and) losers

Thomas Giebe () and Elmar Wolfstetter

Games and Economic Behavior, 2008, vol. 63, issue 1, pages 91-106

Abstract: This paper revisits the licensing of a non-drastic process innovation by an outside innovator to a Cournot oligopoly. We propose a new mechanism that combines a restrictive license auction with royalty licensing. This mechanism is more profitable than standard license auctions, auctioning royalty contracts, fixed-fee licensing, pure royalty licensing, and two-part tariffs. The key features are that royalty contracts are auctioned and that losers of the auction are granted the option to sign a royalty contract. Remarkably, combining royalties for winners and losers of the auction makes the integer constraint concerning the number of licenses irrelevant.

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Related works:
Working Paper: License Auctions with Royalty Contracts for (Winners and) Losers (2007)
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