Optimal Licensing of Technology in the Face of (Asymmetric) Competition

19 Pages Posted: 31 Oct 2017 Last revised: 27 Aug 2018

See all articles by Cuihong Fan

Cuihong Fan

Shanghai University of Finance and Economics

Byoung Jun

Korea University

Elmar Wolfstetter

Humboldt University of Berlin - Faculty of Economics; Korea University - College of Economics and Commerce; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 27, 2018

Abstract

We reconsider the optimal licensing of technology by an incumbent firm in the presence of multiple potential licensees. In a first step we consider the standard case of one license and show that competition among potential licensees has a drastic effect on optimal two-part tariff contracts. We also consider alternative mechanisms such as standard and more sophisticated menu license auctions, and design a dynamic mechanism that is more profitable. In a second step we allow the licensor to issue more than one license and introduce a globally optimal dynamic mechanism that extracts the maximum industry profit while reducing the potential licensees’ payoff to the minimum level that they can assure themselves. That mechanism awards licenses to all firms and prescribes maximum permitted royalty rates together with positive fixed fees.

Keywords: Patent Licensing, Dynamic Mechanisms, Menu Auctions

JEL Classification: D21, D43, D44, D45

Suggested Citation

Fan, Cuihong and Jun, Byoung and Wolfstetter, Elmar G., Optimal Licensing of Technology in the Face of (Asymmetric) Competition (April 27, 2018). International Journal of Industrial Organization, Vol. 60, No. Sept., 2018: 32-53, Available at SSRN: https://ssrn.com/abstract=3061304 or http://dx.doi.org/10.2139/ssrn.3061304

Cuihong Fan

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Byoung Jun

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea, Republic of (South Korea)

Elmar G. Wolfstetter (Contact Author)

Humboldt University of Berlin - Faculty of Economics ( email )

Institut für Wirtschaftstheorie I
Spandauer Strasse 1
Berlin
Germany
+49 30 2093 5652/3 (Phone)
+49 30 2093 5619 (Fax)

HOME PAGE: http://www2.hu-berlin.de/wt1wo/staff/wolfstetter/index.html

Korea University - College of Economics and Commerce ( email )

Anam-dong, Sungbuk-Ku
Seoul, 136-701
Korea

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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