Munich Personal RePEc Archive

Licensing a product innovation in a Cournot industry

Antelo, Manel and Bru, Lluís (2023): Licensing a product innovation in a Cournot industry.

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We study how a firm licenses a product improvement innovation to its rival in the final market. Contrary to what happens with fixed-fee licensing or per-unit royalty licensing, pure ad-valorem royalty licensing is optimal but is welfare reducing. On welfare grounds, fixed-fee licensing dominates per-unit royalty agreements, but has the disadvantage that firms sometimes fail to reach an agreement if licensing deals are restricted to feature fixed fees. A simple rule for a second-best optimal policy on technology licensing is proposed.

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