Exclusive Versus Non-Exclusive Licensing Strategies and Moral Hazard

13 Pages Posted: 26 Nov 2007

See all articles by Patrick W. Schmitz

Patrick W. Schmitz

University of Cologne; Centre for Economic Policy Research (CEPR)

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Abstract

A patentee has invented a new technology. There are two downstream firms that might successfully develop a marketable product based on the new technology. The probability with which a downstream firm is successful in developing the product depends on its effort level. There are situations in which two licenses are sold if effort is a hidden action, while one exclusive license is provided if effort is verifiable. Moral hazard may thus increase the probability that the product will be developed. Methodologically, the concept of "virtual costs" is used in a moral hazard framework, demonstrating the analogy to adverse selection models.

Suggested Citation

Schmitz, Patrick W., Exclusive Versus Non-Exclusive Licensing Strategies and Moral Hazard. Economics Letters, Vol. 97, No. 3, 2007. Available at SSRN: https://ssrn.com/abstract=1032146

Patrick W. Schmitz (Contact Author)

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

HOME PAGE: http://schmitz.uni-koeln.de/index.php?s=mitarbeiter&t=schmitz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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