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Selling licences for a process innovation: the impact of the product market on the selling mechanism

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  • Aniruddha Bagchi

Abstract

. This article considers the sale by a research lab of licences for a cost‐reducing innovation. The marginal cost of a firm that wins a licence is private information and the acquisition of a licence imposes a negative externality on the other firms. The lab's optimal revenue is determined from a class of mechanisms in which the lab selects the number of licences and the reserve price before the sale. The role of the downstream product market in the determination of the number of licences is analyzed. Furthermore, it is also shown that the optimal reserve price may be zero. Ce mémoire étudie la vente par un laboratoire de recherche de licences pour l'utilisation d'une innovation qui réduit les coûts. Le coût marginal de la firme qui obtient la licence est une information qui demeure privée, et cette acquisition impose un effet externe négatif sur les autres firmes. Le revenu optimal du laboratoire est déterminé par le choix qu'il fait dans une classe de mécanismes: le laboratoire peut choisir le nombre de licences qu'il émettra et le prix le plus bas auquel il est prêt à vendre. On analyse le rôle de la nature du marché du produit en aval sur le nombre de licences. On montre aussi que le prix optimal auquel on voudra vendre peut être zéro.

Suggested Citation

  • Aniruddha Bagchi, 2008. "Selling licences for a process innovation: the impact of the product market on the selling mechanism," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(3), pages 1015-1045, August.
    • Handle: RePEc:wly:canjec:v:41:y:2008:i:3:p:1015-1045
    DOI: 10.1111/j.1540-5982.2008.00495.x
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    References listed on IDEAS

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    Cited by:

    1. Jean-Etienne de Bettignies & Bulat Gainullin & Hua Fang Liu & David T. Robinson, 2018. "The Effects of Downstream Competition on Upstream Innovation and Licensing," NBER Working Papers 25166, National Bureau of Economic Research, Inc.
    2. Drouard, Joeffrey, 2022. "Content-distribution strategies in markets with locked-in customers," International Journal of Industrial Organization, Elsevier, vol. 80(C).
    3. Jean-Etienne de Bettignies & Hua Fang Liu & David T. Robinson & Bulat Gainullin, 2023. "Competition and Innovation in Markets for Technology," Management Science, INFORMS, vol. 69(8), pages 4753-4773, August.
    4. Constantine Manasakis & Emmanuel Petrakis & Vasileios Zikos‡, 2014. "Downstream Research Joint Venture with Upstream Market Power," Southern Economic Journal, John Wiley & Sons, vol. 80(3), pages 782-802, January.

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