Licensing a product innovation in a Cournot industry

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

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Product innovation, licensing, Cournot competition, welfare
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D45 - Rationing ; Licensing

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