Licensing under general demand and cost functions
Debapriya Sen and
Giorgos Stamatopoulos ()
MPRA Paper from University Library of Munich, Germany
We consider a Cournot duopoly under general demand and cost functions, where an incumbent patentee has a cost reducing technology that it can license to its rival by using combinations of royalties and upfront fees (two-part tariffs). We show that for drastic technologies: (a) licensing occurs and both firms stay active if the cost function is superadditive and (b) licensing does not occur and the patentee monopolizes the market if the cost function is additive or subadditive. For non drastic technologies, licensing takes place provided the average efficiency gain from the cost reducing technology is higher than the marginal gain computed at the licensee's reservation output. Optimal licensing policies have both royalties and fees for significantly superior technologies if the cost function is superadditive. By contrast, for additive and certain subadditive cost functions, optimal licensing policies have only royalties and no fees.
Keywords: Patent licensing; Superadditive function; Subadditive function; Royalties; Two-part tariff (search for similar items in EconPapers)
JEL-codes: D43 D45 L13 (search for similar items in EconPapers)
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Published in European Journal of Operational Research 3.253(2016): pp. 673-680
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Journal Article: Licensing under general demand and cost functions (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:73980
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