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Licensing to a durable-good monopoly

Changying Li () and Xiaoyan Geng

Economic Modelling, 2008, vol. 25, issue 5, 876-884

Abstract: This paper incorporates a durable-good monopoly model and re-examines the argument on licensing contracts. It shows that, from the perspective of the non-producing patent holder, the optimal licensing contract depends on the nature and the degree of the innovations. Specifically, for small cost-reducing or quality-improving innovations, charging a royalty is optimal. For large cost-reducing or quality-improving innovations, licensing by means of a fee and a royalty is superior to using either alone. However, for the case of horizontal product innovations, using a fee contract is optimal.

Date: 2008
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