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The Relevance of Bargaining for the Licensing of a Cost-Reducing Innovation

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  • Sempere Monerris, Jose J
  • Vannetelbosch, Vincent J

Abstract

In the context of a Cournot duopoly, this paper studies the licensing of a cost-reducing innovation by means of three possible allocation mechanisms: auction, fixed fee, and direct negotiation. Once the use of an arbitrary reserve price (which is not credible) has been excluded, it is no longer true that auction always yields higher profit to the patentee than a fixed fee. However, the authors propose a direct negotiation that restores the patentee's profit to the level of an auction with an arbitrary reserve price (which is unimplementable). Direct negotiation is superior to both an auction with a nonarbitrary reserve price and a fixed fee. From the social point of view, however, licensing with a fixed fee is the best option. Copyright 2001 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Suggested Citation

  • Sempere Monerris, Jose J & Vannetelbosch, Vincent J, 2001. "The Relevance of Bargaining for the Licensing of a Cost-Reducing Innovation," Bulletin of Economic Research, Wiley Blackwell, vol. 53(2), pages 101-115, April.
    • Handle: RePEc:bla:buecrs:v:53:y:2001:i:2:p:101-15
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    Cited by:

    1. Stephen C. Hansen & John S. Hughes, 2005. "The Dissemination of Management Consulting Innovations and the Pace of Technological Improvements," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(3), pages 536-555, September.
    2. Sen, Debapriya & Tauman, Yair, 2007. "General licensing schemes for a cost-reducing innovation," Games and Economic Behavior, Elsevier, vol. 59(1), pages 163-186, April.
    3. Neelanjan Sen, 2015. "Technology transfer and its effect on innovation," Economics Bulletin, AccessEcon, vol. 35(4), pages 2523-2534.
    4. Naoki Watanabe & Shigeo Muto, 2008. "Stable profit sharing in a patent licensing game: general bargaining outcomes," International Journal of Game Theory, Springer;Game Theory Society, vol. 37(4), pages 505-523, December.
    5. Ana Mauleon & Vincent Vannetelbosch & Cecilia Vergari, 2013. "Bargaining and delay in patent licensing," International Journal of Economic Theory, The International Society for Economic Theory, vol. 9(4), pages 279-302, December.
    6. Arijit Mukherjee & Yingyi Tsai, 2013. "Technology licensing under optimal tax policy," Journal of Economics, Springer, vol. 108(3), pages 231-247, April.

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