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

Hattori, Masahiko and Tanaka, Yasuhito (2017): Royalty and license fee under vertical differentiation in oligopoly with or without entry of innovator: Two-step auction.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: royalty, license fee; entry; oligopoly; vertical differentiation; two-step auction
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

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