Licensing a Vertical Product Innovation

11 Pages Posted: 1 Jan 2011  

Changying Li

University of Colorado at Boulder - Department of Economics

Junmei Wang

affiliation not provided to SSRN

Date Written: November 23, 2010

Abstract

This paper studies the case where an outside patent holder licenses its vertical product innovation to two Cournot competitors. It is found that, under a fixed-fee contract, the patent holder prefers exclusive licensing. However, under a royalty or two-part tariff contract, the patent holder favours non-exclusive licensing. Moreover, in contrast to the standard argument by Kamien and Tauman, we show that, from the perspective of the patentee, royalty licensing can be superior to fixed-fee licensing, if the degree of innovation is small. Two-part tariff licensing generates a monopoly outcome in the final market and hence reduces both consumer surplus and social welfare, if the innovation is low.

Keywords: D45, D43, L13

Suggested Citation

Li, Changying and Wang, Junmei, Licensing a Vertical Product Innovation (November 23, 2010). Economic Record, Vol. 86, Issue 275, pp. 517-527, 2010. Available at SSRN: https://ssrn.com/abstract=1733395 or http://dx.doi.org/10.1111/j.1475-4932.2010.00630.x

Changying Li (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States

HOME PAGE: http://www.colorado.edu/Economics/people/students.html

Junmei Wang

affiliation not provided to SSRN

No Address Available

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