Optimal two-part tariff licensing in a Stackelberg duopoly

Masashi Umezawa ()
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Masashi Umezawa: Department of Business Economics, School of Management, Tokyo University of Science

Economics Bulletin, 2022, vol. 42, issue 2, 629 - 642

Abstract: This article studies the patent licensing of a cost-reducing innovation by an incumbent innovator in a Stackelberg duopoly. We show that two-part ad valorem profit royalty licensing, which is verified to be equal to pure ad valorem profit royalties, is superior to both two-part per-unit royalty and two-part ad valorem revenue royalty licensing offers for the patentee if the innovation is non-drastic and relatively small. Then, both consumer and social welfare are lower under ad valorem profit royalty licensing than under the other two-part royalty licensing offer, as well as under no licensing. incumbent innovator in a Stackelberg duopoly. We show that two-part ad valorem profit royalty licensing, which is verified to be equal to pure ad valorem profit royalties, is superior to both two-part per-unit royalty and two-part ad valorem revenue royalty licensing offers for the patentee if the innovation is non-drastic and relatively small. Then, both consumer and social welfare are lower under ad valorem profit royalty licensing than under the other two-part royalty licensing offer, as well as under no licensing.

Keywords: Incumbent innovator; Licensing; Royalty; Stackelberg duopoly; Two-part tariff (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2022-06-30
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