Bargaining outcomes in patent licensing: Asymptotic results in a general Cournot market

Abstract

We study asymptotic bargaining outcomes in licensing a patented technology of an external patent holder to firms in a general Cournot market. Our results are as follows: When the number of firms is large, the bargaining set for each permissible coalition structure suggests that the patent holder should extract the entire profits of all licensees. The outcome that the bargaining finally reaches exactly coincides with the non-cooperative outcome, and it cannot be improved upon even by any objections with almost zero cost. Thus, it is strongly stable. The fair allocation represented by the Aumann-Drèze value is, however, not realized as such a stable bargaining outcome.

On the Sustainability of Technology Licensing Under Asymmetric Information Game

“…For example: technology shares, auctions, bargaining, cross-licensing, ad valorem royalties and up-front payment, etc. Related discussion can refer to Katz and Shapiro [6], Stamatopoulos and Tauman [21], Kishimoto et al [22], Miao [23], Heywood et al [24], Jeon and Lefouili [25], and Lee et al [26]. However, unit royalty and fixed-fee licensing remain the most important licensing tools in the theory and practice.…”

“…Equations (21) and (22) represent that when the h type firm chooses the contract for the type, h will always be worth more than choosing the contract for the l type and vice versa. In other words, if these two mixed licensing choice combinations, r * l , F * l and r * h , F * h , meet the incentive compatibility constraints of Equations (21) and (22), domestic firms will surely choose the licensing choice, which is consistent with what is observed in the actual market. This is known as the sorting (or Spence-Mirrless) condition.…”

Cooperation in R&D: Patenting, Licensing, and Contracting

“…Another interesting recent development in the literature is to consider the licensing problem in a cooperative game theoretic framework instead of the standard non cooperative approach. There is a small but growing literature on the cooperative approach (Tauman and Watanabe, 2007;Watanabe and Muto, 2008;Jelnov and Tauman, 2009;Kishimoto, Watanabe and Muto, 2011). One key result of this literature is that as the number of firms in an oligopoly increases asymptotically, the solutions of non-cooperative and cooperative approaches give the same value for the patent.…”

Licensing strategy for a stochastic R&D firm in a differentiated Cournot duopoly model

“…The literature on technology licensing strategy has primarily developed along two lines. One stream of the literature examines optimal licensing strategies for outside innovators (e.g., Mukherjee, 2010;Li & Wang, 2010;Kishimoto et al, 2011;Rey & Salant, 2012;Chang et al, 2013;Bagchi & Mukherjee, 2014). For example, Mukherjee (2010) introduces unions to the research and classifies these by whether they have centralized or decentralized structures.…”

“…The result shows that as long as the union has full bargaining power (i.e., a monopoly union; see (Leahy & Montagna, 2000;Haucap & Wey, 2004), royalty licensing is superior to the other two strategies in spite of the union structure for outside innovators. (Kishimoto et al, 2011) study asymptotic bargaining outcomes when licensing a patented technology from an outside innovator to firms in a general Cournot structure. (Chang et al, 2013) consider a vertically related market structure in which the outside patentee licenses a cost-reducing technology to one or both downstream firms through either a fixed-fee or royalty licensing agreement.…”