License Auctions With Royalty Contracts for (Winners and) Losers
19 Pages Posted: 28 Feb 2006 Last revised: 29 Oct 2017
Date Written: April 1, 2007
This paper revisits the licensing of a non--drastic process innovation by an outside innovator to a Cournot oligopoly. We propose a new mechanism that combines a restrictive license auction with royalty licensing. This mechanism is more profitable than standard license auctions, auctioning royalty contracts, fixed--fee licensing, pure royalty licensing, and two-part tariffs. The key features are that royalty contracts are auctioned and that losers of the auction are granted the option to sign a royalty contract. Remarkably, combining royalties for winners and losers makes the integer constraint concerning the number of licenses irrelevant.
Keywords: Licensing, Auctions, Royalty, Innovation, R&D, Mechanism Design
JEL Classification: D21, D43, D44, D45
Suggested Citation: Suggested Citation