Investment and Patent Licensing in the Value Chain

Gerard Llobet and Damien Neven

No 30-2022, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: At which stage in the production chain should patent licensing takes place? In this paper we show that under realistic circumstances a patent holder would be better off by licensing downstream. This occurs when the licensing revenue can depend on the downstream value of the product either directly or through the use of ad-valorem royalties. We show that the results are similar when, instead, we assume that the downstream licensee is less informed about the validity of the patent. In most cases, downstream licensing increases allocative efficiency. However, it might reduce the incentives to invest by the manufacturers and thereby reduce welfare. We characterize the circumstances under which a conflict arises between the stage at which patent holders prefer to license their technology and the stage at which it is optimal from a social standpoint that licensing takes place.

Keywords: Royalty Neutrality; Standard Setting Organizations; Patent Licensing; R&D Investment. (search for similar items in EconPapers)
JEL-codes: L15 L24 O24 O31 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2022-12-22
New Economics Papers: this item is included in nep-com, nep-ind, nep-ino, nep-ipr and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Investment and Patent Licensing in the Value Chain (2022)
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