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Patent licensing under financial structure with limited liability

Kuang-Cheng Andy Wang, Yi-Jie Wang, Wen-Jung Liang, Ming-Che Tsai and Chao-Cheng Mai

International Review of Economics & Finance, 2016, vol. 46, issue C, 121-135

Abstract: In a seminal paper, Kamien and Tauman (1986) show that fixedfee licensing is always superior to royalty licensing for the outsider licensor under Cournot competition. However, empirical studies demonstrate that royalty licensing is much more popular than fixed-fee licensing. We attempt to reconcile this controversy by taking into account the financial structure of firms with limited liability. We show that the optimal licensing contract under Cournot competition is royalty licensing if the mean-preserving variance of demand is large, while it is non-exclusive fixed-fee licensing otherwise. Moreover, this result is robust under mixed licensing contract and an oligopolistic market.

Keywords: Leveraged firms; Limited liability; Outsider patentee; Cournot competition; Licensing means (search for similar items in EconPapers)
JEL-codes: L24 G33 (search for similar items in EconPapers)
Date: 2016
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