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Royalty and license fee under vertical differentiation in oligopoly with or without entry of innovator: Two-step auction

Masahiko Hattori () and Yasuhito Tanaka ()

MPRA Paper from University Library of Munich, Germany

Abstract: When an outside innovating firm has a technology to produce a higher quality good than the good produced at present, it can sell licenses of its technology to incumbent firms, or enter the market and at the same time sell licenses, or enter the market without license. We examine the definitions of license fee in such a situation in an oligopoly with three firms under vertical product differentiation, one outside innovating firm and two incumbent firms, considering threat by entry of the innovating firm using a two-step auction. We also present an example of the optimal strategy for the innovating firm under the assumption of uniform distribution of consumers' taste parameter and zero cost. Also we suppose that the innovating firm sells its licenses using a combination of royalty per output and a fixed license fee.

Keywords: royalty, license fee; entry; oligopoly; vertical differentiation; two-step auction (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind, nep-ino, nep-ipr and nep-mic
Date: 2017-05-01
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