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‘To sell or not to sell’: Licensing versus selling by an outside innovator

Swapnendu Banerjee (Bandyopadhyay) () and Sougata Poddar ()

Economic Modelling, 2019, vol. 76, issue C, 293-304

Abstract: We study various modes of technology transfer of an outside innovator in a spatial framework when the potential licensees are asymmetric. In addition to different licensing options, we also look into the option of selling the property rights of innovation and find the optimal mode of technology transfer. For licensing we find the optimal policy is to offer pure royalty contracts to both licensee firms when cost differentials between the firms are relatively small compared to the transportation cost, otherwise offer a fixed fee licensing contract to the efficient firm only. Interestingly, we show the innovator is always better-off selling the innovation to any one of the firms who further licenses it to the rival firm. The result holds irrespective of the size of the innovation (drastic or non-drastic) and the degree of cost asymmetry between the licensees. Social welfare is greater under selling than licensing.

Keywords: Outside innovator; Cost-reducing innovation; Patent licensing; Patent selling; Welfare; Linear city model (search for similar items in EconPapers)
JEL-codes: D43 D45 L13 (search for similar items in EconPapers)
Date: 2019
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Working Paper: ‘To sell or not to sell’: Licensing versus Selling by an outside innovator (2017) Downloads
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DOI: 10.1016/j.econmod.2018.08.006

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