IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/105742.html
   My bibliography  Save this paper

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

Author

Listed:
  • Antelo, Manel
  • Bru, Lluís

Abstract

We consider licensing of a non-drastic innovation by a patentholder who interacts with a potential licensee in a Stackelberg duopoly. We compare per-unit and ad-valorem royalty contracts, showing why and when each licensing deal should be observed. We find that ad-valorem royalty is preferred by a licensor that plays as the leader, but per-unit royalty is more profitable if the licensor is the follower. We also find that only innovations that do not hurt consumers are socially beneficial. Finally, licensor’s leadership or followership and innovation size determine licensing impact on the incentive to disseminate an innovation.

Suggested Citation

  • Antelo, Manel & Bru, Lluís, 2020. "Per-unit versus ad-valorem royalty licensing in a Stackelberg market," MPRA Paper 105742, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:105742
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/105742/1/MPRA_paper_105742.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    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. Luigi Filippini, 2005. "Licensing Contract In A Stackelberg Model," Manchester School, University of Manchester, vol. 73(5), pages 582-598, September.
    4. 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.
    5. Reinganum, Jennifer F, 1983. "Uncertain Innovation and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 73(4), pages 741-748, September.
    6. Stefano Colombo & Luigi Filippini, 2016. "Revenue royalties," Journal of Economics, Springer, vol. 118(1), pages 47-76, May.
    7. 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.
    8. repec:bla:ausecp:v:41:y:2002:i:3:p:267-81 is not listed on IDEAS
    9. 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.
    10. 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.
    11. 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.
    12. 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.
    13. 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.
    14. 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.
    15. 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.
    16. 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.
    17. Zoltan Acs & David Audretsch, 1990. "Innovation and Small Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011131, December.
    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. Jeetendra Khadan, 2018. "Estimating the Effects of Human Capital Constraints on Innovation in the Caribbean," Economies, MDPI, vol. 6(2), pages 1-18, May.
    4. 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.
    5. Montinaro, Marta & Scrimitore, Marcella, 2019. "Per unit and ad valorem royalties in a patent licensing game," MPRA Paper 96642, University Library of Munich, Germany.
    6. Masashi Umezawa, 2022. "Optimal two-part tariff licensing in a Stackelberg duopoly," Economics Bulletin, AccessEcon, vol. 42(2), pages 629-642.
    7. 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.
    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. 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.
    11. Stefano Colombo & Luigi Filippini, 2015. "Patent Licensing with Bertrand Competitors," Manchester School, University of Manchester, vol. 83(1), pages 1-16, January.
    12. 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.
    13. Koutroumpis, Pantelis & Leiponen, Aija & Thomas, Llewellyn D.W., 2020. "Small is big in ICT: The impact of R&D on productivity," Telecommunications Policy, Elsevier, vol. 44(1).
    14. Montinaro, Marta & Pal, Rupayan & Scrimitore, Marcella, 2020. "Per Unit and Ad Valorem Royalties in a Patent Licensing Game," FACTS: Firms And Cities Towards Sustainability 307305, Fondazione Eni Enrico Mattei (FEEM) > FACTS: Firms And Cities Towards Sustainability.
    15. 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.
    16. Masahiko Hattori & Yasuhito Tanaka, 2017. "Competitiveness of Firm Behavior and Public Policy for New Technology Adoption in an Oligopoly," Journal of Industry, Competition and Trade, Springer, vol. 17(2), pages 135-151, June.
    17. Caterina Santi & Pietro Santoleri, 2017. "Exploring the link between innovation and growth in Chilean firms," Small Business Economics, Springer, vol. 49(2), pages 445-467, August.
    18. Joern Block & Christopher Hansen & Holger Steinmetz, 2023. "Are Family Firms Doing More Innovation Output With Less Innovation Input? A Replication and Extension," Entrepreneurship Theory and Practice, , vol. 47(4), pages 1496-1520, July.
    19. 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.
    20. Arijit Mukherjee & Yingyi Tsai, 2013. "Technology licensing under optimal tax policy," Journal of Economics, Springer, vol. 108(3), pages 231-247, April.

    More about this item

    Keywords

    Licensing; leader and follower; welfare;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

    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:pra:mprapa:105742. 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.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.