The Relevance of Bargaining for the Licensing of a Cost-Reducing Innovation

Jose J Sempere Monerris and Vincent Vannetelbosch
Authors registered in the RePEc Author Service: José J. Sempere-Monerris

Bulletin of Economic Research, 2001, vol. 53, issue 2, 101-15

Abstract: In the context of a Cournot duopoly, this paper studies the licensing of a cost-reducing innovation by means of three possible allocation mechanisms: auction, fixed fee, and direct negotiation. Once the use of an arbitrary reserve price (which is not credible) has been excluded, it is no longer true that auction always yields higher profit to the patentee than a fixed fee. However, the authors propose a direct negotiation that restores the patentee's profit to the level of an auction with an arbitrary reserve price (which is unimplementable). Direct negotiation is superior to both an auction with a nonarbitrary reserve price and a fixed fee. From the social point of view, however, licensing with a fixed fee is the best option. Copyright 2001 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 2001
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