Royalty Licensing

Marta San Martín Lizarralde and Ana Saracho

No 6548, IKERLANAK from Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I

Abstract: A patent provides its holder the monopolist´s right to sell licenses that allow the use of new technology. Empirically, most of the patent licensing agreements that are observed include royalties, in particular per unit or ad valorem royalties. The theoretical literature, however, has focused most of its attention to attempt to explain the presence of royalties by considering per-unit royalties. In this paper, we show that an internal patentee may prefer licensing by means of ad valorem royalties rather than per-unit royalties and other licensing mechanism traditionally considered in the literature. The reason is that by including an ad valorem royalty in the licensing contract the patentee can commit strategically to be less aggressive since its licensing revenues become increasing in the price of output. As a result, licensing hurts consumers.

Keywords: patent licensing; royalty; Cournot duopoly (search for similar items in EconPapers)
Date: 2009-09
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Journal Article: Royalty licensing (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ehu:ikerla:6548

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Dpto. de Fundamentos del Análisis Económico I, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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