General licensing schemes for a cost-reducing innovation

Debapriya Sen and Yair Tauman ()

No 02-03, Department of Economics Working Papers from Stony Brook University, Department of Economics

Abstract: Two general forms of standard licensing policies are considered for a non-drastic cost-reducing innovation: (a) combination of an upfront fee and uniform linear royalty, and (b) combination of auction and uniform linear royalty. It is shown that in an oligopoly, the total reduction in the cost due to the innovation for the pre-innovation competitive output forms the lower bound of the payoffs of both outsider and incumbent innovators. Further, the private value of the patent is increasing in the magnitude of the innovation, while the Cournot price and the payoff of any other firm fall below their respective pre-innovation levels. Sufficiently significant innovations from an outsider innovator are licensed exclusively to a single firm. Otherwise, all other firms, except perhaps one, become licensees. The dissemination of the innovation is generally higher with an incumbent innovator compared to an outsider. For both outsider and incumbent innovators, the monopoly does not provide the highest incentive to innovate; for sufficiently insignificant innovations, it is the duopoly that does so, and, the industry size that provides the highest incentive increases with the magnitude of the innovation. Finally, it is argued that significant innovations are more likely to occur when the innovator is an incumbent firm.

Keywords: Non-drastic innovation; outsider innovator; incumbent innovator; FR policy; AR policy. (search for similar items in EconPapers)
JEL-codes: D21 D43 D45 (search for similar items in EconPapers)
Pages: 47
Date: 2002
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.stonybrook.edu/commcms/economics/research/papers/2002/02-03.pdf (application/pdf)

Related works:
Journal Article: General licensing schemes for a cost-reducing innovation (2007)
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:nys:sunysb:02-03

Access Statistics for this paper

More papers in Department of Economics Working Papers from Stony Brook University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by ().