Per-unit versus ad-valorem royalty licensing in a Stackelberg market

Manel Antelo and Lluis Bru

Economia e Politica Industriale: Journal of Industrial and Business Economics, 2022, vol. 49, issue 1, No 4, 95-109

Abstract: Abstract We consider licensing of a non-drastic innovation by a licensor that interacts with a potential licensee in a Stackelberg duopoly, comparing per-unit and ad-valorem royalty two-part contracts and showing why and when each licensing deal should be used. We contribute three findings to the literature. First, ad-valorem royalty is preferred when the licensor plays as leader in the marketplace, but per-unit royalty is preferred when the licensor plays as follower. Second, only innovations that do not hurt consumers are socially beneficial. Third, our model also suggests that both the licensor’s status as a leader or follower in the marketplace and the innovation size determine the incentive to engage in innovative activities.

Keywords: Licensing; Per-unit royalties; Ad-valorem royalties; Leader; Follower; Welfare (search for similar items in EconPapers)
JEL-codes: L13 L24 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Working Paper: Per-unit versus ad-valorem royalty licensing in a Stackelberg market (2020)
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DOI: 10.1007/s40812-021-00205-x

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