Munich Personal RePEc Archive

Per unit and ad valorem royalties in a patent licensing game

Montinaro, Marta and Scrimitore, Marcella (2019): Per unit and ad valorem royalties in a patent licensing game.

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Abstract

In a context of product innovation, we study two-part tariff licensing between a patentee and a potential rival which compete in a differentiated product market characterized by network externalities. The latter are shown to crucially affect the relative profitability of Cournot vs. Bertrand when a per unit royalty is applied. By contrast, we find that Cournot yields higher profits than Bertrand under ad valorem royalties, regardless of the strength of network effects.

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