IDEAS home Printed from https://ideas.repec.org/a/eee/indorg/v47y2016icp33-61.html
   My bibliography  Save this article

Licensing a technology standard

Author

Listed:
  • Miao, Chun-Hui

Abstract

I examine the optimal licensing strategy of the owner of a proprietary technology standard in a monopolistically competitive industry. The standard owner can be either an outsider inventor or a joint venture of downstream firms. I find that (1) a simple revenue royalty replicates the integrated monopoly outcome; (2) a patent pool cannot do better than adopting a non-discriminatory licensing policy that offers higher royalty rates to pool members than to nonmembers; (3) if the standard owner also sells a complementary good, then it may choose a decentralized marketplace as a commitment not to maximize licensing revenue. Implications to the use of RAND pricing in standard settings are discussed.

Suggested Citation

  • Miao, Chun-Hui, 2016. "Licensing a technology standard," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 33-61.
    • Handle: RePEc:eee:indorg:v:47:y:2016:i:c:p:33-61
    DOI: 10.1016/j.ijindorg.2016.02.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167718716300017
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ijindorg.2016.02.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Yuan, Hong & Krishna, Aradhna, 2008. "Pricing of mall services in the presence of sales leakage," Journal of Retailing, Elsevier, vol. 84(1), pages 95-117.
    2. Josh Lerner & Marcin Strojwas & Jean Tirole, 2007. "The design of patent pools: the determinants of licensing rules," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 610-625, September.
    3. Aoki, Reiko & Nagaoka, Sadao, 2004. "The Consortium Standard and Patent Pools," Economic Review, Hitotsubashi University, vol. 55(4), pages 345-357, October.
    4. Sougata Poddar & Uday Bhanu Sinha, 2004. "On Patent Licensing in Spatial Competition," The Economic Record, The Economic Society of Australia, vol. 80(249), pages 208-218, June.
    5. 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.
    6. Anne Layne-Farrar & A. Jorge Padilla & Richard Schmalensee, 2007. "Pricing Patents for Licensing in Standard Setting Organizations: Making Sense of FRAND Commitments," Working Papers wp2007_0702, CEMFI.
    7. Meniere, Yann & Parlane, Sarah, 2010. "Decentralized licensing of complementary patents: Comparing the royalty, fixed-fee and two-part tariff regimes," Information Economics and Policy, Elsevier, vol. 22(2), pages 178-191, May.
    8. Josh Lerner & Jean Tirole, 2004. "Efficient Patent Pools," American Economic Review, American Economic Association, vol. 94(3), pages 691-711, June.
    9. 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.
    10. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    11. Carl Shapiro, 2001. "Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting," NBER Chapters, in: Innovation Policy and the Economy, Volume 1, pages 119-150, National Bureau of Economic Research, Inc.
    12. Mathias Dewatripont & Patrick Legros, 2013. "‘Essential’ Patents, FRAND Royalties and Technological Standards," Journal of Industrial Economics, Wiley Blackwell, vol. 61(4), pages 913-937, December.
    13. Martin K. Perry & Robert H. Groff, 1985. "Resale Price Maintenance and Forward Integration into a Monopolistically Competitive Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1293-1311.
    14. Michael Kende, 1998. "Profitability under an Open versus a Closed System," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(2), pages 307-326, June.
    15. 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.
    16. Stamatopoulos, Giorgos & Tauman, Yair, 2008. "Licensing of a quality-improving innovation," Mathematical Social Sciences, Elsevier, vol. 56(3), pages 410-438, November.
    17. Ilya Segal & Michael D. Whinston, 2007. "Antitrust in Innovative Industries," American Economic Review, American Economic Association, vol. 97(5), pages 1703-1730, December.
    18. Roger W. Koenker & Martin K. Perry, 1981. "Product Differentiation, Monopolistic Competition, and Public Policy," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 217-231, Spring.
    19. Sung-Hwan Kim, 2004. "Vertical Structure and Patent Pools," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 25(3), pages 231-250, July.
    20. Kamien, Morton I. & Tauman, Yair & Zang, Israel, 1988. "Optimal license fees for a new product," Mathematical Social Sciences, Elsevier, vol. 16(1), pages 77-106, August.
    21. Robert D. Willig, 1978. "Pareto-Superior Nonlinear Outlay Schedules," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 56-69, Spring.
    22. Lemarié, S., 2005. "Vertical integration and the licensing of innovation with a fixed fee or a royalty," Working Papers 200517, Grenoble Applied Economics Laboratory (GAEL).
    23. Michael L. Katz & Carl Shapiro, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 567-589.
    24. Gans, Joshua S., 2012. "Mobile application pricing," Information Economics and Policy, Elsevier, vol. 24(1), pages 52-59.
    25. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    26. Hernandez-Murillo, Ruben & Llobet, Gerard, 2006. "Patent licensing revisited: Heterogeneous firms and product differentiation," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 149-175, January.
    27. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 33, pages 2145-2220, Elsevier.
    28. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July.
    29. Oz Shy & Zhu Wang, 2011. "Why Do Payment Card Networks Charge Proportional Fees?," American Economic Review, American Economic Association, vol. 101(4), pages 1575-1590, June.
    30. Bousquet, Alain & Cremer, Helmuth & Ivaldi, Marc & Wolkowicz, Michel, 1998. "Risk sharing in licensing," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 535-554, September.
    31. Morton I. Kamien & Yair Tauman, 2002. "Patent Licensing: The Inside Story," Manchester School, University of Manchester, vol. 70(1), pages 7-15, January.
    32. Gilbert, Richard J., 2011. "Deal or No Deal? Licensing Negotiations in Standard-Setting Organizations," Department of Economics, Working Paper Series qt6kv798tf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    33. Anne Layne-Farrar, 2010. "Nondiscriminatory Pricing: Is Standard Setting Different?," Journal of Competition Law and Economics, Oxford University Press, vol. 6(4), pages 811-838.
    34. Shapiro, Carl, 1985. "Patent Licensing and R&D Rivalry," American Economic Review, American Economic Association, vol. 75(2), pages 25-30, May.
    35. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-414, May.
    36. Layne-Farrar, Anne & Lerner, Josh, 2011. "To join or not to join: Examining patent pool participation and rent sharing rules," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 294-303, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jens Leth Hougaard & Chiu Yu Ko & Xuyao Zhang, 2017. "A Welfare Economic Interpretation of FRAND," IFRO Working Paper 2017/04, University of Copenhagen, Department of Food and Resource Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Amir, Rabah & Encaoua, David & Lefouili, Yassine, 2014. "Optimal licensing of uncertain patents in the shadow of litigation," Games and Economic Behavior, Elsevier, vol. 88(C), pages 320-338.
    2. Sen, Debapriya, 2005. "Fee versus royalty reconsidered," Games and Economic Behavior, Elsevier, vol. 53(1), pages 141-147, October.
    3. Rey, Patrick & Salant, David, 2012. "Abuse of dominance and licensing of intellectual property," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 518-527.
    4. 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.
    5. Sudipto Bhattacharya & Claude d’Aspremont & Sergei Guriev & Debapriya Sen & Yair Tauman, 2014. "Cooperation in R&D: Patenting, Licensing, and Contracting," International Series in Operations Research & Management Science, in: Kalyan Chatterjee & William Samuelson (ed.), Game Theory and Business Applications, edition 2, chapter 0, pages 265-286, Springer.
    6. Siyu Ma & Debapriya Sen & Yair Tauman, 2024. "Optimal patent licensing: from three to two part tariffs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(4), pages 1233-1273, December.
    7. Debapriya Sen & Giorgos Stamatopoulos, 2009. "Technology Transfer Under Returns To Scale," Manchester School, University of Manchester, vol. 77(3), pages 337-365, June.
    8. Rabah Amir & David Encaoua & Yassine Lefouili, 2011. "Per-Unit Royalty vs Fixed Fee: The Case of Weak Patents," Working Papers halshs-00595493, HAL.
    9. Stamatopoulos, Giorgos & Tauman, Yair, 2008. "Licensing of a quality-improving innovation," Mathematical Social Sciences, Elsevier, vol. 56(3), pages 410-438, November.
    10. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, September.
    11. Tina Kao, 2009. "Strategic Licensing And Sequential Innovations," Manchester School, University of Manchester, vol. 77(4), pages 512-551, July.
    12. Sen, Debapriya, 2005. "On the coexistence of different licensing schemes," International Review of Economics & Finance, Elsevier, vol. 14(4), pages 393-413.
    13. Ismail Saglam, 2023. "Licensing cost‐reducing innovations under supply function competition," Bulletin of Economic Research, Wiley Blackwell, vol. 75(1), pages 180-201, January.
    14. 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.
    15. Arijit Mukherjee, 2010. "Technology licensing under convex costs," Discussion Papers 10/05, University of Nottingham, School of Economics.
    16. Stefano Colombo & Luigi Filippini, 2015. "Patent Licensing with Bertrand Competitors," Manchester School, University of Manchester, vol. 83(1), pages 1-16, January.
    17. Mukherjee, Arijit, 2010. "Licensing a new product: Fee vs. royalty licensing with unionized labor market," Labour Economics, Elsevier, vol. 17(4), pages 735-742, August.
    18. Bagchi, Aniruddha & Mukherjee, Arijit, 2014. "Technology licensing in a differentiated oligopoly," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 455-465.
    19. Stefano Colombo & Luigi Filippini, 2016. "Revenue royalties," Journal of Economics, Springer, vol. 118(1), pages 47-76, May.
    20. Yair Tauman & Debrapiya Sen, 2012. "Patents and Licenses," Department of Economics Working Papers 12-05, Stony Brook University, Department of Economics.

    More about this item

    Keywords

    Licensing; Monopolistic competition; Patent pool; Royalty; Technology standard; Vertical control;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • G2 - Financial Economics - - Financial Institutions and Services

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:47:y:2016:i:c:p:33-61. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505551 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.