IDEAS home Printed from https://ideas.repec.org/a/spr/epolin/v49y2022i1d10.1007_s40812-021-00205-x.html
   My bibliography  Save this article

Per-unit versus ad-valorem royalty licensing in a Stackelberg market

Author

Listed:
  • Manel Antelo

    (Universidade de Santiago de Compostela)

  • Lluís Bru

    (Universitat de les Illes Balears)

Abstract

We consider licensing of a non-drastic innovation by a licensor that interacts with a potential licensee in a Stackelberg duopoly, comparing per-unit and ad-valorem royalty two-part contracts and showing why and when each licensing deal should be used. We contribute three findings to the literature. First, ad-valorem royalty is preferred when the licensor plays as leader in the marketplace, but per-unit royalty is preferred when the licensor plays as follower. Second, only innovations that do not hurt consumers are socially beneficial. Third, our model also suggests that both the licensor’s status as a leader or follower in the marketplace and the innovation size determine the incentive to engage in innovative activities.

Suggested Citation

  • Manel Antelo & Lluís Bru, 2022. "Per-unit versus ad-valorem royalty licensing in a Stackelberg market," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(1), pages 95-109, March.
  • Handle: RePEc:spr:epolin:v:49:y:2022:i:1:d:10.1007_s40812-021-00205-x
    DOI: 10.1007/s40812-021-00205-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s40812-021-00205-x
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s40812-021-00205-x?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 look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Giulia Trombini & Anna Comacchio, 2012. "Cooperative Markets for Ideas: When does Technology Licensing Combine with R&D Partnerships?," Working Papers 8, Venice School of Management - Department of Management, Università Ca' Foscari Venezia.
    2. X. Henry Wang & Bill Z. Yang, 2004. "On Technology Licensing In A Stackelberg Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 43(4), pages 448-458, December.
    3. Kenneth Fjell & John S. Heywood, 2002. "Public Stackelberg Leadership in a Mixed Oligopoly with Foreign Firms," Australian Economic Papers, Wiley Blackwell, vol. 41(3), pages 267-281, September.
    4. Fan, Cuihong & Jun, Byoung Heon & Wolfstetter, Elmar G., 2018. "Per unit vs. ad valorem royalty licensing," Economics Letters, Elsevier, vol. 170(C), pages 71-75.
    5. Maria Pluvia Zuniga & Dominique Guellec, 2009. "Who Licenses out Patents and Why?: Lessons from a Business Survey," OECD Science, Technology and Industry Working Papers 2009/5, OECD Publishing.
    6. Luigi Filippini, 2005. "Licensing Contract In A Stackelberg Model," Manchester School, University of Manchester, vol. 73(5), pages 582-598, September.
    7. Czarnitzki, Dirk & Kraft, Kornelius, 2004. "An empirical test of the asymmetric models on innovative activity: who invests more into R&D, the incumbent or the challenger?," Journal of Economic Behavior & Organization, Elsevier, vol. 54(2), pages 153-173, June.
    8. Cuihong Fan & Byoung Heon Jun & Elmar G. Wolfstetter, 2018. "Optimal licensing under incomplete information: the case of the inside patent holder," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(4), pages 979-1005, December.
    9. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-748, September.
    10. Coad, Alex & Segarra, Agustí & Teruel, Mercedes, 2016. "Innovation and firm growth: Does firm age play a role?," Research Policy, Elsevier, vol. 45(2), pages 387-400.
    11. Yue Li & Takashi Yanagawa, 2011. "Patent licensing of Stackelberg manufacturer in a differentiated product market," International Journal of Economic Theory, The International Society for Economic Theory, vol. 7(1), pages 7-20, March.
    12. 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.
    13. Stefano Colombo & Luigi Filippini, 2016. "Revenue royalties," Journal of Economics, Springer, vol. 118(1), pages 47-76, May.
    14. Elena Huergo & Jordi Jaumandreu, 2004. "How Does Probability of Innovation Change with Firm Age?," Small Business Economics, Springer, vol. 22(3_4), pages 193-207, April.
    15. Zoltan Acs & David Audretsch, 1990. "Innovation and Small Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011131, April.
    16. Tarun Kabiraj, 2005. "Technology Transfer In A Stackelberg Structure: Licensing Contracts And Welfare," Manchester School, University of Manchester, vol. 73(1), pages 1-28, January.
    17. repec:bla:ausecp:v:41:y:2002:i:3:p:267-81 is not listed on IDEAS
    18. San Martín, Marta & Saracho, Ana I., 2016. "Patent strength and optimal two-part tariff licensing with a potential rival incorporating ad valorem royalties," Economics Letters, Elsevier, vol. 143(C), pages 28-31.
    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. Antelo, Manel & Bru, Lluís, 2022. "Licensing in a Stackelberg industry, product differentiation, and welfare," MPRA Paper 114181, University Library of Munich, Germany.
    2. Nuno Costa & João Lourenço, 2022. "Bi-Objective Optimization Problems—A Game Theory Perspective to Improve Process and Product," Sustainability, MDPI, vol. 14(22), pages 1-14, November.
    3. Masashi Umezawa, 2022. "Optimal two-part tariff licensing in a Stackelberg duopoly," Economics Bulletin, AccessEcon, vol. 42(2), pages 629-642.

    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. Antelo, Manel & Bru, Lluís, 2022. "Licensing in a Stackelberg industry, product differentiation, and welfare," MPRA Paper 114181, University Library of Munich, Germany.
    2. 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.
    3. 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.
    4. Jeetendra Khadan, 2018. "Estimating the Effects of Human Capital Constraints on Innovation in the Caribbean," Economies, MDPI, vol. 6(2), pages 1-18, May.
    5. Mili Shrivastava & Jagannadha Pawan Tamvada, 2019. "Which green matters for whom? Greening and firm performance across age and size distribution of firms," Small Business Economics, Springer, vol. 52(4), pages 951-968, April.
    6. Montinaro, Marta & Scrimitore, Marcella, 2019. "Per unit and ad valorem royalties in a patent licensing game," MPRA Paper 96642, University Library of Munich, Germany.
    7. Masashi Umezawa, 2022. "Optimal two-part tariff licensing in a Stackelberg duopoly," Economics Bulletin, AccessEcon, vol. 42(2), pages 629-642.
    8. Hattori, Masahiko & Tanaka, Yasuhito, 2016. "License or entry in oligopoly," MPRA Paper 73547, University Library of Munich, Germany.
    9. 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.
    10. Coad, Alex & Segarra, Agustí & Teruel, Mercedes, 2016. "Innovation and firm growth: Does firm age play a role?," Research Policy, Elsevier, vol. 45(2), pages 387-400.
    11. Gabriele Pellegrino, 2015. "Barriers to innovation: can firm age help lower them?," Working Papers 2015/3, Institut d'Economia de Barcelona (IEB).
    12. Ismail Saglam, 2023. "Licensing cost‐reducing innovations under supply function competition," Bulletin of Economic Research, Wiley Blackwell, vol. 75(1), pages 180-201, January.
    13. Kabiraj, Abhishek & Kabiraj, Tarun, 2017. "Tariff induced licensing contracts, consumers’ surplus and welfare," Economic Modelling, Elsevier, vol. 60(C), pages 439-447.
    14. Masahiko Hattori & Yasuhito Tanaka, 2016. "Subsidizing New Technology Adoption in a Stackelberg Duopoly: Cases of Substitutes and Complements," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 2(2), pages 197-215, July.
    15. Pelin Demirel & Qian Cher Li & Francesco Rentocchini & J. Pawan Tamvada, 2019. "Born to be green: new insights into the economics and management of green entrepreneurship," Small Business Economics, Springer, vol. 52(4), pages 759-771, April.
    16. Zhang, Huaige & Wang, Xuejun & Qing, Ping & Hong, Xianpei, 2016. "Optimal licensing of uncertain patents in a differentiated Stackelberg duopolistic competition market," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 215-229.
    17. Pietro Santoleri, 2020. "Innovation and job creation in (high-growth) new firms," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 29(3), pages 731-756.
    18. Stefano Colombo & Luigi Filippini, 2015. "Patent Licensing with Bertrand Competitors," Manchester School, University of Manchester, vol. 83(1), pages 1-16, January.
    19. Masahiko Hattori & Yasuhito Tanaka, 2015. "Subsidy or tax policy for new technology adoption in duopoly with quadratic and linear cost functions," Economics Bulletin, AccessEcon, vol. 35(2), pages 1423-1433.
    20. Marta Montinaro & Rupayan Pal & Marcella Scrimitore, 2020. "Per unit and ad valorem royalties in a patent licensing game," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2020-014, Indira Gandhi Institute of Development Research, Mumbai, India.

    More about this item

    Keywords

    Licensing; Per-unit royalties; Ad-valorem royalties; Leader; Follower; Welfare;
    All these keywords.

    JEL classification:

    • 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

    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:spr:epolin:v:49:y:2022:i:1:d:10.1007_s40812-021-00205-x. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.