Licensing to a More Efficient Rival

Fridtjof Anderson

Manchester School, 2014, vol. 82, issue 6, 653-676

Abstract: This paper studies licensing of a cost-reducing innovation in an environment with horizontal product differentiation where the licensee is the most efficient firm in absence of the innovation. We derive the optimal two-part tariff and show that when we allow for negative royalty rates, the optimal contract may involve the patentee paying its rival a per-unit subsidy.

Date: 2014
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Citations: View citations in EconPapers (3)

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