Patent licensing in a Cournot oligopoly: general results

Sen, Debapriya and Tauman, Yair (2018): Patent licensing in a Cournot oligopoly: general results. Forthcoming in: Mathematical Social Sciences

Abstract

This paper presents a comprehensive analysis of patent licensing in a Cournot oligopoly with general demand and looks at both outside and incumbent innovators. The licensing policies considered are upfront fees, unit royalties and combinations of fees and royalties (FR policies). It is shown that (i) royalties unambiguously ensure full diffusion of the innovation while diffusion is limited under upfront fees, (ii) the Cournot price is higher under royalties compared to upfront fees and the price could even exceed the post-innovation monopoly price, (iii) for generic values of magnitudes of the innovation, when the industry size is relatively large, royalties are superior to upfront fees for the innovator and (iv) for any m, there is always a non empty subset of m-drastic innovations such that for relatively large industry sizes, upfront fee policy results in higher consumer surplus as well as welfare compared to both royalty and FR policies.

• Item Type: MPRA Paper
• Language: English
• Keywords: patent licensing; m-drastic innovation; royalties; upfront fees; FR policy
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design; 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; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L24 - Contracting Out ; Joint Ventures ; Technology Licensing

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