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Licensing a new product with non‐linear contracts

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  • Can Erutku
  • Yves Richelle

Abstract

This paper looks at a situation where a licensor owns a patent on a technology that allows the production of a new good. The licensor seeks to license its innovation to a set of producers that differ according to their marginal cost of producing an existing good. We show that the licensor is able to obtain the profit a monopolist would achieve by producing the new good. The equilibrium licensing contract specifies both a fixed fee and a royalty scheme based on the production of a licensee. Le mémoire examine la situation où un détenteur de brevet sur une technologie qui permet de produire un nouveau bien cherche à céder une autorisation d'exploiter cette innovation à un ensemble de producteurs qui ont différents coûts marginaux de production d'un bien existant. On montre que le détenteur de brevet est capable d'obtenir le profit qu'un monopoleur obtiendrait en produisant le nouveau bien. Le contrat de licence d'équilibre spécifie à la fois un paiement forfaitaire et un arrangement de royautés sur la base du volume de production de l'exploitant.

Suggested Citation

  • Can Erutku & Yves Richelle, 2006. "Licensing a new product with non‐linear contracts," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(3), pages 932-947, August.
    • Handle: RePEc:wly:canjec:v:39:y:2006:i:3:p:932-947
    DOI: 10.1111/j.1540-5982.2006.00376.x
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    References listed on IDEAS

    as
    1. 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.
    2. Bharat N. Anand & Tarun Khanna, 2000. "The Structure of Licensing Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 48(1), pages 103-135, March.
    3. repec:bla:jindec:v:48:y:2000:i:1:p:103-35 is not listed on IDEAS
    4. Ilya Segal, 1999. "Contracting with Externalities," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(2), pages 337-388.
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