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Patent licensing in a Cournot oligopoly: General results

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  • Sen, Debapriya
  • Tauman, Yair

Abstract

This paper presents a comprehensive analysis of patent licensing in a Cournot oligopoly with general demand and looks at both cases: outside and incumbent innovators. The licensing policies considered are upfront fees, unit royalties and combinations of fees and royalties (FR policies). It is shown that (i) royalties unambiguously ensure full diffusion of the innovation while diffusion is limited under upfront fees, (ii) the Cournot price is higher under royalties compared to upfront fees and the price could even exceed the post-innovation monopoly price, (iii) for generic values of magnitudes of the innovation, when the industry size is relatively large, royalties are superior to upfront fees for the innovator and (iv) for any m, there is always a non empty subset of m-drastic innovations such that for relatively large industry sizes, upfront fee policy results in higher consumer surplus as well as welfare compared to both royalty and FR policies.

Suggested Citation

  • Sen, Debapriya & Tauman, Yair, 2018. "Patent licensing in a Cournot oligopoly: General results," Mathematical Social Sciences, Elsevier, vol. 96(C), pages 37-48.
    • Handle: RePEc:eee:matsoc:v:96:y:2018:i:c:p:37-48
    DOI: 10.1016/j.mathsocsci.2018.08.001
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    Citations

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    Cited by:

    1. Badia, Bruno D. & Tauman, Yair & Tumendemberel, Biligbaatar, 2020. "On the diffusion of competing innovations," Mathematical Social Sciences, Elsevier, vol. 108(C), pages 8-13.
    2. Stefano Colombo & Siyu Ma & Debapriya Sen & Yair Tauman, 2021. "Equivalence between fixed fee and ad valorem profit royalty," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(5), pages 1052-1073, October.
    3. Lu, Yuanzhu & Poddar, Sougata, 2023. "Exclusive and non-exclusive licensing with shelving," Mathematical Social Sciences, Elsevier, vol. 126(C), pages 13-29.
    4. 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.
    5. Anzhou Zhang, 2022. "Competition and the negative expected social value of cost‐reducing innovation," Manchester School, University of Manchester, vol. 90(1), pages 59-76, January.
    6. Leonardos, Stefanos & Petrakis, Emmanuel & Skartados, Panagiotis & Stamatopoulos, Giorgos, 2021. "Partial passive ownership holdings and licensing," Economics Letters, Elsevier, vol. 204(C).

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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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