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Vertical integration and the licensing of innovation with a fixed fee or a royalty

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  • Lemarié, S.

Abstract

In this paper, we analyse a situation where a patent holder is considered as an upstream firm that can license its innovation to some downstream companies that compete on a final market with differentiated products. Licensing contract may be based either on a royalty or a fixed fee. The patent holder can either be independant or vertically integrated with one of the downstream companies. We show that a licence based on a royalty works better with vertical integration, and that consequently, the patent holder have some interest to vertically integrate if it enables him to apply a royalty based license. The effect of vertical integration on the social surplus can be either positive or negative.

Suggested Citation

  • Lemarié, S., 2005. "Vertical integration and the licensing of innovation with a fixed fee or a royalty," Working Papers 200517, Grenoble Applied Economics Laboratory (GAEL).
    • Handle: RePEc:gbl:wpaper:200517
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    File URL: https://gael.univ-grenoble-alpes.fr/sites/default/files/Mediatheque/doc-recherche/WP/A2005/gael2005-17.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Bouguezzi, Fehmi & EL ELJ, Moez, 2009. "Vertical Integration and Patent Licensing in Upstream and Downstream Markets," MPRA Paper 22212, University Library of Munich, Germany.
    2. Miao, Chun-Hui, 2016. "Licensing a technology standard," International Journal of Industrial Organization, Elsevier, vol. 47(C), pages 33-61.
    3. Stamatopoulos, Giorgos & Tauman, Yair, 2008. "Licensing of a quality-improving innovation," Mathematical Social Sciences, Elsevier, vol. 56(3), pages 410-438, November.
    4. Filippini Luigi & Vergari Cecilia, 2017. "Vertical Integration Smooths Innovation Diffusion," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(3), pages 1-22, July.
    5. Chrysovalantou Miliou & Emmanuel Petrakis, 2015. "Vertical Integration, Knowledge Disclosure and Decreasing Rival's Cost," Working Papers 1507, University of Crete, Department of Economics.

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    More about this item

    Keywords

    LICENSING; INNOVATION; VERTICAL INTEGRATION;
    All these keywords.

    JEL classification:

    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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