Patent Licensing with Bertrand Competitors

Stefano Colombo () and Luigi Filippini

Manchester School, 2015, vol. 83, issue 1, 1-16

Abstract: type="main">

This paper analyses an optimal two-part licensing scheme based on ad valorem royalties within a differentiated Bertrand duopoly where the innovator is also the downstream producer, and compares it with the optimal two-part per-unit royalty mechanism. After showing that the optimal two-part ad valorem licensing scheme reduces to a pure ad valorem royalty scheme, we show that per-unit contracts are typically preferred to ad valorem contracts by the patentee, as, under price competition, the per-unit royalty has a stronger strategic effect than the ad valorem royalty. In contrast, welfare is higher under the ad valorem contract than under the per-unit mechanism.

Date: 2015
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Working Paper: Patent licensing with Bertrand competitors (2012)
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