Poddar, Sougata and Bouguezzi, Fehmi (2011): Patent licensing in spatial competition: Does pre-innovation cost asymmetry matter?
Download (678kB) | Preview
We consider the optimal licensing strategy of an insider patentee in a circular city of Salop’s model and in a linear city of Hotelling’s model when firms have asymmetric pre-innovation marginal costs of production and compete in prices. We completely characterize the optimal licensing policies using a fixed fee and per-unit royalty under the drastic and non-drastic innovations. We find that when the innovative firm is efficient compared to the licensee at the pre-innovation stage then the results regarding optimal licensing policy coincide with the results described in the literature with symmetric firms. However, this is not true when the innovative firm is inefficient in the pre-innovation stage compared to the licensee. To that end, we show that even a drastic innovation can be licensed using a royalty scheme when the patentee is highly inefficient compared to licensee in the pre-innovation stage and the size of the innovation is intermediate. We also show that in this set-up, fixed fee licensing is never optimal.
|Item Type:||MPRA Paper|
|Original Title:||Patent licensing in spatial competition: Does pre-innovation cost asymmetry matter?|
|Keywords:||Innovation; Technology transfer; Salop model; Hotelling model; Patent licensing; symmetric and asymmetric costs|
|Subjects:||L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets
D - Microeconomics > D4 - Market Structure and Pricing > D45 - Rationing; Licensing
D - Microeconomics > D4 - Market Structure and Pricing > D43 - Oligopoly and Other Forms of Market Imperfection
|Depositing User:||Sougata Poddar|
|Date Deposited:||13. Aug 2011 08:05|
|Last Modified:||16. Feb 2013 09:55|
Caballero, F., Moner, R., and Semoere, J. (2002), Optimal Licensing in a Spatial Model, Ammales d’Economie et de Statistique, 66, 258-279.
Caves, R., Crokell, H., and Killing P. (1983), The Imperfect Market for Technology Licenses, Oxford Bulletin of Economics and Statistics, 45, 249-268.
Erkal, N. (2005), Optimal Licensing Policy in Differentiated Industries, Economic Record, 81, 51-60.
Fauli-Oller, R. and Sandonis, J. (2002), Welfare Reducing Licensing, Games and Economic Behavior, 41, 192-205.
Ghosh, A. and Saha, S. (2008), Trade Policy in the Presence of Technology Licensing, Review of International Economics, 16, 45-68.
Hotelling, H. (1929), Stability in Competition, The Economic Journal, 39, 41-57.
Jensen, R. and Thursby M. (2001), Proofs and Prototypes for Sale: The Licensing of University Inventions, American Economic Review, 91, 240-259.
Kabiraj, T., and Marjit, S. (2003), Protecting Consumers through Protection: The Role of Tariff-induced Technology Transfer, European Economic Review, 47, 113-124.
Kamien, M. (1992), Patent Licensing, In Aumann, R. J., and Hart, S. (Eds.), Handbook of Game Theory, Chapter 11.
Kamien, M. I. and Tauman, Y. (1986), Fees versus Royalties and the Private Value of a Patent, Quarterly Journal of Economics, 101, 471-491.
Kamien, M. I. and Tauman, Y. (2002), Patent Licensing: the Inside Story, The Manchester School, 70, 7-15.
Katz, M. and Shapiro, C. (1986), How to License Intangible Property, Quarterly Journal of Economics, 101, 567-589.
Macho-Stadler, I., Martinez, X. and Prerez-Castrillo, D. (1996), The Role of Information in Licensing Contract Design, Research Policy, 25, 43-57.
Mukherjee, A. (2007), Optimal Licensing Contract in an Open Economy, Economics Bulletin, 12, 1-6.
Mukherjee, A. and Pennings, E. (2006), Tariffs, Licensing and Market Structure, European Economic Review, 50, 1690 – 1707.
Poddar, S. and Sinha, U.B, (2004), On Patent Licensing in Spatial Competition. Economic Record 80, 208 – 218.
Poddar, S. and Sinha, U.B, (2010), Patent Licening from a High-Cost to a Low-Cost Firm. Economic Record 86, 384 – 395.
Salop, Steven (1979), Monopolistic competition with outside goods. Bell Journal of Economics 10, 141 - 156.
Rockett, K. (1990), The Quality of Licensed Technology, International Journal of Industrial Organization, 8, 559-574.
Rostoker, M. (1983), A Survey of Corporate Licensing, IDEA-The Journal of Law and Technology, PTC Research Report 24, 59-92.
Saracho, A. I. (2002), Patent Licensing under Strategic Delegation, Journal of Economics and Management Strategy, Volume 11, Number 2, 2002, 225–251.
Sen, D. (2005), Fee versus Royalty Reconsidered, Games and Economic Behavior, 53, 141-147.
Sen, D., Tauman, Y. (2007), General Licensing Schemes for a Cost-Reducing Innovation, Games and Economic Behavior, 59, 163-186.
Singh, N., and Vives, X. (1984), Price and Quantity Competition in a Differentiated Duopoly, Rand Journal of Economics, 15, 546–554.
Vishwasrao, S. (2007), Royalties vs. Fees: How Do Firms Pay for Foreign Technology? International Journal of Industrial Organization, 25, 741-759.
Wang, X. H., (1998), Fee versus royalty licensing in a Cournot duopoly model, Economics Letters, 60, 55-62.
Wang, X. H., (2002), Fee versus royalty licensing in differentiated Cournot oligopoly, Journal of Economics and Business, 54, 253-266.