Patent Licensing from a High-Cost Firm to a Low-Cost Firm

12 Pages Posted: 24 Aug 2010

See all articles by Sougata Poddar

Sougata Poddar

National University of Singapore (NUS)

Uday Bhanu Sinha

Indian Statistical Institute

Abstract

We depart from the standard framework and study optimal patent licensing under Cournot duopoly where the technology transfer takes place from an innovative firm, which is relatively inefficient in terms of cost of production, to its cost-efficient rival. Interestingly, we find even a drastic technology is licensed and the optimal licensing arrangement always involves a two-part tariff (i.e. a fixed-fee plus a linear per unit output royalty). Under non-drastic innovation, the two-part tariff is optimal when the cost difference between the firms is moderate. Our framework also helps to bridge the gap between optimal licensing schemes for ‘insider’ and ‘outsider’ patentees.

Suggested Citation

Poddar, Sougata and Sinha, Uday Bhanu, Patent Licensing from a High-Cost Firm to a Low-Cost Firm. Economic Record, Vol. 86, Issue 274, pp. 384-395, September 2010, Available at SSRN: https://ssrn.com/abstract=1661391 or http://dx.doi.org/10.1111/j.1475-4932.2010.00633.x

Sougata Poddar (Contact Author)

National University of Singapore (NUS) ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

Uday Bhanu Sinha

Indian Statistical Institute ( email )

203 B. T. Road
Kolkata, West Bengal 700108
India

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