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Debapriya Sen and Giorgos Stamatopoulos ()

Manchester School, 2009, vol. 77, issue 3, 337-365

Abstract: In this paper we consider the licensing of a cost‐reducing innovation by an outside innovator that uses optimal combinations of upfront fees and royalties in a Cournot duopoly characterized by non‐constant returns to scale. The main conclusion of our theoretical analysis is that incidence of positive royalties and diffusion of innovations are both inversely related to economies of scale. Our analysis provides a plausible explanation of the variation of licensing policies across industries.

Date: 2009
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Handle: RePEc:bla:manchs:v:77:y:2009:i:3:p:337-365