Welfare improving licensing with endogenous choice of prices versus quantities

Hong-Ren Din and Chia-Hung Sun

The North American Journal of Economics and Finance, 2020, vol. 51, issue C

Abstract: This paper investigates the endogenous choice of prices versus quantities by taking into account patent licensing where the patent holder, which is itself a producer within the industry, licenses its cost-reducing innovation to the rival firm through a two-part tariff contract. For substitute products we find that both Cournot and mixed price-quantity competition may constitute the equilibrium outcomes, depending on the innovation size. Contrary to the results in Fauli-Oller and Sandonis (2002), we show that the optimal licensing contract definitely leads to an increase in social welfare. Our result reinforces the positive welfare effect of patent licensing.

Keywords: Patent licensing; Two-part tariff; Cournot competition; Bertrand competition; Endogenous strategic variables (search for similar items in EconPapers)
JEL-codes: D21 D43 L13 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:51:y:2020:i:c:s1062940818304789

DOI: 10.1016/j.najef.2018.10.007

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