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Insider patent holder licensing in an oligopoly market with different cost structures: Fixed-fee, royalty, and auction

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  • Ming-Chung Chang

    (Department of Risk Management, Kainan University, Taiwan)

Abstract

The issue of the optimal licensing contract in firms having different cost structures is studied when the innovator is a producing patent holder who has three alternative licensing strategies, namely, the fixed-fee, royalty rate, and auction strategies. We conclude that the auction licensing strategy is not the best strategy when the innovator is a producing patent holder. This finding differs from that of Kabiraj (2004) where the auction licensing method is the optimal licensing strategy when the innovator is a non-producing patent holder. However, when we only compare two of the licensing methods, namely, the fixed-fee licensing method and the royalty licensing method, we conclude that if the inside innovator licenses to only some of the firms, then the royalty licensing method will be the best strategy. This result is different from that of Fosfuri and Roca (2004), who concluded that if only some of the licensees obtain a licensing contract, then the fixed-fee licensing method will be the best choice for a producing patent holder.

Suggested Citation

  • Ming-Chung Chang, 2010. "Insider patent holder licensing in an oligopoly market with different cost structures: Fixed-fee, royalty, and auction," Economics Bulletin, AccessEcon, vol. 30(1), pages 20-31.
    • Handle: RePEc:ebl:ecbull:eb-09-00136
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    References listed on IDEAS

    as
    1. Andrea Fosfuri & Esther Roca, 2004. "Optimal Licensing Strategy: Royalty or Fixed Fee?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 3(1), pages 13-19, April.
    2. Tarun Kabiraj, 2004. "Patent Licensing in a Leadership Structure," Manchester School, University of Manchester, vol. 72(2), pages 188-205, March.
    3. Kamien, Morton I. & Oren, Shmuel S. & Tauman, Yair, 1992. "Optimal licensing of cost-reducing innovation," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 483-508.
    4. Morton I. Kamien & Yair Tauman, 1986. "Fees Versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 471-491.
    5. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July.
    6. Rockett, Katharine, 1990. "The quality of licensed technology," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 559-574, December.
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    More about this item

    Keywords

    Licensing strategy; Cost structure; Auction;
    All these keywords.

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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