Per unit vs. ad valorem royalties under asymmetric information

John Heywood, Jianpei Li and Guangliang Ye

International Journal of Industrial Organization, 2014, vol. 37, issue C, 38-46

Abstract: We study an inside patent holder's optimal licensing policy when it has imperfect information about the value of the patent to its rival. The patent holder can choose any two-part licensing fee with either per unit or ad valorem royalties. We demonstrate that the equilibrium will be either a fully separating contract with different per unit royalty rates, or a contract with a single ad valorem royalty that excludes a high cost rival. Fixed fees will not be used. The presence of asymmetric information uniquely drives the per unit royalties that otherwise would not be adopted. Per unit royalties always generate higher social welfare than ad valorem royalties.

Keywords: Patent licensing; Insider; Asymmetric information; Per unit royalty; Ad valorem royalty (search for similar items in EconPapers)
JEL-codes: D21 D43 D44 D45 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167718714000642
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:37:y:2014:i:c:p:38-46

DOI: 10.1016/j.ijindorg.2014.07.005

Access Statistics for this article

International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal

More articles in International Journal of Industrial Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().