IDEAS home Printed from https://ideas.repec.org/p/cde/cdewps/245.html
   My bibliography  Save this paper

Optimal Value Of A Patent In An Asymmetric Cournot Duopoly Market

Author

Listed:
  • Uday Bhanu Sinha

    (Departments of Economics, Delhi School of Economics, University of Delhi, India)

Abstract

We consider a mechanism for optimizing the value of a patent owned by an independent patent holder who is not a producer in the market. We consider two kinds of cost reducing innovations: “common innovation” and “new technology innovation” in a homogeneous good Cournot market with ex-ante asymmetric costs of production. We show that the value of the patent is maximized when the patent holder sells the patent to the efficient firm at a fixed payment who would further license the innovation to its rival. This patent sale dominates all other licensing mechanisms for both kinds of innovations.

Suggested Citation

  • Uday Bhanu Sinha, 2015. "Optimal Value Of A Patent In An Asymmetric Cournot Duopoly Market," Working papers 245, Centre for Development Economics, Delhi School of Economics.
    • Handle: RePEc:cde:cdewps:245
    as

    Download full text from publisher

    File URL: http://www.cdedse.org/pdf/work245.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Fauli-Oller, Ramon & Sandonis, Joel, 2002. "Welfare reducing licensing," Games and Economic Behavior, Elsevier, vol. 41(2), pages 192-205, November.
    2. R.J. Aumann & S. Hart (ed.), 2002. "Handbook of Game Theory with Economic Applications," Handbook of Game Theory with Economic Applications, Elsevier, edition 1, volume 3, number 3.
    3. Figueroa, Nicolás & Serrano, Carlos J., 2019. "Patent trading flows of small and large firms," Research Policy, Elsevier, vol. 48(7), pages 1601-1616.
    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. Arijit Mukherjee, 2007. "Optimal licensing contract in an open economy," Economics Bulletin, AccessEcon, vol. 12(3), pages 1-6.
    7. 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.
    8. Sougata Poddar & Uday Bhanu Sinha, 2010. "Patent Licensing from a High‐Cost Firm to a Low‐Cost Firm," The Economic Record, The Economic Society of Australia, vol. 86(274), pages 384-395, September.
    9. Rockett, Katharine, 1990. "The quality of licensed technology," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 559-574, December.
    10. Inés Macho-Stadler & David Perez-Castrillo, 1991. "Contrats de licences et asymétrie d'information," Annals of Economics and Statistics, GENES, issue 24, pages 189-208.
    11. Wang, Kuang-Cheng Andy & Liang, Wen-Jung & Chou, Pin-Shu, 2013. "Patent licensing under cost asymmetry among firms," Economic Modelling, Elsevier, vol. 31(C), pages 297-307.
    12. Carlos J. Serrano, 2010. "The dynamics of the transfer and renewal of patents," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 686-708, December.
    13. Lu, Yuanzhu & Poddar, Sougata, 2014. "Patent licensing in spatial models," Economic Modelling, Elsevier, vol. 42(C), pages 250-256.
    14. Tauman, Yair & Weng, Ming-Hung, 2012. "Selling patent rights and the incentive to innovate," Economics Letters, Elsevier, vol. 114(3), pages 241-244.
    15. Andrea Fosfuri & Esther Roca, 2004. "Optimal Licensing Strategy: Royalty or Fixed Fee?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 3(1), pages 13-19, April.
    16. 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.
    17. Schmitz, Patrick W., 2002. "On Monopolistic Licensing Strategies under Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 106(1), pages 177-189, September.
    18. Stamatopoulos, Giorgos & Tauman, Tami, 2009. "On the superiority of fixed fee over auction in asymmetric markets," Games and Economic Behavior, Elsevier, vol. 67(1), pages 331-333, September.
    19. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    20. X. Henry Wang & Bill Yang, 2004. "On Technology Transfer to an Asymmetric Cournot Duopoly," Economics Bulletin, AccessEcon, vol. 4(14), pages 1-6.
    21. repec:ebl:ecbull:v:12:y:2007:i:3:p:1-6 is not listed on IDEAS
    22. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July.
    23. Anne Duchêne & Debapriya Sen & Konstantinos Serfes, 2015. "Patent Licensing and Entry Deterrence: The Role of Low Royalties," Economica, London School of Economics and Political Science, vol. 82, pages 1324-1348, December.
    24. Nancy T. Gallini & Brian D. Wright, 1990. "Technology Transfer under Asymmetric Information," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 147-160, Spring.
    25. 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.
    26. Morton I. Kamien & Yair Tauman, 2002. "Patent Licensing: The Inside Story," Manchester School, University of Manchester, vol. 70(1), pages 7-15, January.
    27. Kamien, Morton I., 1992. "Patent licensing," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 11, pages 331-354, Elsevier.
    28. repec:ebl:ecbull:v:4:y:2004:i:14:p:1-6 is not listed on IDEAS
    29. Kamien, Morton I. & Oren, Shmuel S. & Tauman, Yair, 1992. "Optimal licensing of cost-reducing innovation," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 483-508.
    30. Ana I. Saracho, 2002. "Patent Licensing Under Strategic Delegation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(2), pages 225-251, June.
    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. Sánchez, M. & Nerja, A., 2024. "The role of asymmetric innovation’s sizes in technology licensing under partial vertical integration," Research in Economics, Elsevier, vol. 78(2).
    2. Madhuri H.Shastry & Uday Bhanu Sinha, 2023. "Privatization and Licensing under Public Budget Constraint," Working papers 343, Centre for Development Economics, Delhi School of Economics.
    3. Antelo, Manel & Bru, Lluís, 2024. "On the size of innovation and selling versus licensing," MPRA Paper 122731, University Library of Munich, Germany.
    4. Banerjee, Swapnendu & Poddar, Sougata, 2019. "‘To sell or not to sell’: Licensing versus selling by an outside innovator," Economic Modelling, Elsevier, vol. 76(C), pages 293-304.
    5. Tarun Kabiraj & Rittwik Chatterjee & Srobonti Chattopadhyay, 2024. "Free Licensing in a Differentiated Duopoly," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 22(3), pages 589-613, September.
    6. Madhuri H. Shastry & Uday Bhanu Sinha, 2024. "Privatization and Licensing Under Public Budget Constraint," Journal of Industry, Competition and Trade, Springer, vol. 24(1), pages 1-22, December.
    7. Ding, Rong & Ko, Chiu Yu, 2021. "Does licensing improve welfare with rent dissipation?," Economic Modelling, Elsevier, vol. 105(C).
    8. Yulia Dzhabarova & Stanimir Kabaivanov & Margarita Ruseva & Boyan Zlatanov, 2020. "Existence, Uniqueness and Stability of Market Equilibrium in Oligopoly Markets," Administrative Sciences, MDPI, vol. 10(3), pages 1-32, September.
    9. Sougata Poddar & Swapnendu Banerjee & Monalisa Ghosh, 2021. "Technology transfer in spatial competition when licensees are asymmetric," Manchester School, University of Manchester, vol. 89(1), pages 24-45, January.
    10. Gelves, Juan Alejandro & Heywood, John S., 2016. "How does a mixed ownership firm license a patent?," Economic Modelling, Elsevier, vol. 59(C), pages 278-284.
    11. Partha Pratim Dube, 2018. "Bertrand Game Under Cost Function," Australian Economic Papers, Wiley Blackwell, vol. 57(4), pages 489-496, December.
    12. Kabiraj, Abhishek & Kabiraj, Tarun, 2017. "Tariff induced licensing contracts, consumers’ surplus and welfare," Economic Modelling, Elsevier, vol. 60(C), pages 439-447.
    13. Kabiraj, Tarun & Chatterjee, Rittwik & Chattopadhyay, Srobonti, 2020. "Free Licensing in a Differentiated Duopoly," MPRA Paper 101984, University Library of Munich, Germany.

    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. Banerjee, Swapnendu & Poddar, Sougata, 2019. "‘To sell or not to sell’: Licensing versus selling by an outside innovator," Economic Modelling, Elsevier, vol. 76(C), pages 293-304.
    2. Kabiraj, Abhishek & Kabiraj, Tarun, 2017. "Tariff induced licensing contracts, consumers’ surplus and welfare," Economic Modelling, Elsevier, vol. 60(C), pages 439-447.
    3. 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.
    4. 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.
    5. Bagchi, Aniruddha & Mukherjee, Arijit, 2014. "Technology licensing in a differentiated oligopoly," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 455-465.
    6. 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.
    7. 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.
    8. Arijit Mukherjee, 2010. "Technology licensing under convex costs," Discussion Papers 10/05, University of Nottingham, School of Economics.
    9. Sougata Poddar & Uday Bhanu Sinha, 2010. "Patent Licensing from a High‐Cost Firm to a Low‐Cost Firm," The Economic Record, The Economic Society of Australia, vol. 86(274), pages 384-395, September.
    10. Sen, Debapriya, 2005. "Fee versus royalty reconsidered," Games and Economic Behavior, Elsevier, vol. 53(1), pages 141-147, October.
    11. Arijit Mukherjee & Yingyi Tsai, 2013. "Technology licensing under optimal tax policy," Journal of Economics, Springer, vol. 108(3), pages 231-247, April.
    12. Rabah Amir & David Encaoua & Yassine Lefouili, 2011. "Per-Unit Royalty vs Fixed Fee: The Case of Weak Patents," Working Papers halshs-00595493, HAL.
    13. Saracho, Ana I., 2011. "Licensing information goods," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 187-199, March.
    14. Debapriya Sen & Giorgos Stamatopoulos, 2009. "Technology Transfer Under Returns To Scale," Manchester School, University of Manchester, vol. 77(3), pages 337-365, June.
    15. Poddar, Sougata & Bouguezzi, Fehmi, 2011. "Patent licensing in spatial competition: Does pre-innovation cost asymmetry matter?," MPRA Paper 32764, University Library of Munich, Germany.
    16. Yair Tauman & Debrapiya Sen, 2012. "Patents and Licenses," Department of Economics Working Papers 12-05, Stony Brook University, Department of Economics.
    17. Sen, Debapriya, 2005. "On the coexistence of different licensing schemes," International Review of Economics & Finance, Elsevier, vol. 14(4), pages 393-413.
    18. Ismail Saglam, 2023. "Licensing cost‐reducing innovations under supply function competition," Bulletin of Economic Research, Wiley Blackwell, vol. 75(1), pages 180-201, January.
    19. Nisvan Erkal, 2005. "Optimal Licensing Policy in Differentiated Industries," The Economic Record, The Economic Society of Australia, vol. 81(252), pages 51-60, March.
    20. 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.

    More about this item

    Keywords

    Patent sale; licensing; asymmetric firms; cost reducing innovation; auction; fixed fee; royalty; two part tariff;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:cde:cdewps:245. 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: Sanjeev Sharma (email available below). General contact details of provider: https://edirc.repec.org/data/cdudein.html .

    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.