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On the superiority of fixed fee over auction in asymmetric markets

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  • Stamatopoulos, Giorgos
  • Tauman, Tami

Abstract

It is well known that selling licenses for the use of a cost-reducing innovation by auction yields a higher revenue compared to fixed fee in a symmetric Cournot industry. In this note we show that this result can be reversed in an asymmetric Cournot industry, i.e., the fixed fee policy can generate a strictly higher revenue than the auction policy in an industry where prior to the innovation firms are cost-asymmetric.

Suggested Citation

  • Stamatopoulos, Giorgos & Tauman, Tami, 2009. "On the superiority of fixed fee over auction in asymmetric markets," Games and Economic Behavior, Elsevier, vol. 67(1), pages 331-333, September.
    • Handle: RePEc:eee:gamebe:v:67:y:2009:i:1:p:331-333
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    1. 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.
    2. Zhao, Jingang, 2001. "A characterization for the negative welfare effects of cost reduction in Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 455-469, March.
    3. 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.
    4. Michael L. Katz & Carl Shapiro, 1985. "On the Licensing of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 504-520, Winter.
    5. Chun‐Hsiung Liao & Debapriya Sen, 2005. "Subsidy In Licensing: Optimality And Welfare Implications," Manchester School, University of Manchester, vol. 73(3), pages 281-299, June.
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    Cited by:

    1. Chien-Shu Tsai & Ting-Chung Tsai & Po-Sheng Ko & Chien-Hui Lee & Jen-Yao Lee & Yu-Lin Wang, 2019. "On the Sustainability of Technology Licensing Under Asymmetric Information Game," Sustainability, MDPI, vol. 11(24), pages 1-15, December.
    2. Kuang-Cheng Andy Wang & Ching-Chih Tseng & Wen-Jung Liang, 2016. "Patent Licensing in the Presence of Trade Barriers," The Japanese Economic Review, Japanese Economic Association, vol. 67(3), pages 329-347, September.
    3. Arijit Mukherjee & Aniruddha Bagchi, 2020. "Information Disclosure through Technology Licensing," Games, MDPI, vol. 11(3), pages 1-8, September.
    4. Kuang-Cheng Andy Wang & Ching-Chih Tseng & Wen-Jung Liang, 2016. "Patent Licensing in the Presence of Trade Barriers," The Japanese Economic Review, Springer, vol. 67(3), pages 329-347, September.
    5. Kim, Seung-Leul & Lee, Sang-Ho, 2016. "Environmental policy on the fixed-fee licensing of eco-technology under foreign penetration," MPRA Paper 84412, University Library of Munich, Germany.
    6. Luca Sandrini, 2023. "Price vs Market Share with Royalty Licensing: Incomplete Adoption of a Superior Technology with Heterogeneous Firms," Discussion Papers 2302, Budapest University of Technology and Economics, Quantitative Social and Management Sciences.
    7. Stefano Colombo & Luigi Filippini, 2015. "Patent Licensing with Bertrand Competitors," Manchester School, University of Manchester, vol. 83(1), pages 1-16, January.
    8. Arijit Mukherjee & Uday Bhanu Sinha, 2024. "Welfare reducing licensing by an outside innovator," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 12(1), pages 17-24, June.
    9. Creane, Anthony & Ko, Chiu Yu & Konishi, Hideo, 2013. "Choosing a licensee from heterogeneous rivals," Games and Economic Behavior, Elsevier, vol. 82(C), pages 254-268.
    10. Kim, Seung-Leul & Lee, Sang-Ho, 2016. "The licensing of eco-technology under emission taxation: Fixed fee vs. auction," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 343-357.
    11. Banerjee, Swapnendu & Poddar, Sougata, 2019. "‘To sell or not to sell’: Licensing versus selling by an outside innovator," Economic Modelling, Elsevier, vol. 76(C), pages 293-304.
    12. Drouard, Joeffrey, 2022. "Content-distribution strategies in markets with locked-in customers," International Journal of Industrial Organization, Elsevier, vol. 80(C).
    13. Seung-Leul Kim & Sang-Ho Lee, 2014. "Eco-Technology Licensing under Emission Tax: Royalty vs. Fixed-Fee," Korean Economic Review, Korean Economic Association, vol. 30, pages 273-300.
    14. Mariola Sánchez & José Antonio Belso‐Martínez & María José López‐Sánchez & Adrián Nerja, 2022. "Incentives to exclusive and non‐exclusive technology licensing under partial vertical integration," Manchester School, University of Manchester, vol. 90(2), pages 171-189, March.
    15. Ismail Saglam, 2023. "Licensing cost‐reducing innovations under supply function competition," Bulletin of Economic Research, Wiley Blackwell, vol. 75(1), pages 180-201, January.
    16. Sánchez, M. & Nerja, A., 2024. "The role of asymmetric innovation’s sizes in technology licensing under partial vertical integration," Research in Economics, Elsevier, vol. 78(2).
    17. Kim, Seung-Leul & Lee, Sang-Ho, 2021. "Optimal tariffs with emissions taxes under non-restrictive two-part licensing strategies by a foreign eco-competitor," MPRA Paper 108496, University Library of Munich, Germany.
    18. Bruno D. Badia, 2019. "Patent Licensing and Technological Catch-Up in a Heterogeneous Duopoly," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(2), pages 287-300, September.
    19. Sinha, Uday Bhanu, 2016. "Optimal value of a patent in an asymmetric Cournot duopoly market," Economic Modelling, Elsevier, vol. 57(C), pages 93-105.
    20. Sougata Poddar & Swapnendu Banerjee & Monalisa Ghosh, 2021. "Technology transfer in spatial competition when licensees are asymmetric," Manchester School, University of Manchester, vol. 89(1), pages 24-45, January.
    21. Giorgos Stamatopoulos, 2021. "Bargaining over a license: A counterintuitive result," International Journal of Economic Theory, The International Society for Economic Theory, vol. 17(4), pages 471-478, December.

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