Optimal Two‐part Tariff Licensing Mechanisms

Martín, Marta San; Saracho, Ana I.

doi:10.1111/manc.12059

Cited by 34 publications

(16 citation statements)

References 33 publications

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“…He showed that the two forms of two-part tariffs are equivalent to each other regarding both the profitability and the welfare implications. Other works on a two-part ad valorem royalty mechanism include Heywood et al (2014), Colombo and Filippini (2015), and San Martín and Saracho (2015). While these papers assume constant returns to scale, Colombo and Filippini (2016) compared several licensing mechanisms -ad valorem royalty, per-unit royalty and revenue-royalty -under the assumption of decreasing returns to scale in a Cournot duopoly.…”

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Ad Valorem Versus Per‐unit Royalty Licensing in a Cournot Duopoly Model

Hsu

Liu

Wang

et al. 2019

The Manchester School

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Ad valorem royalty licensing is implemented when the licensor (i.e., patent‐holding firm) obtains ownership shares in the licensee as payment once the new technology is transferred. In a Cournot duopoly model, we compare two licensing forms between competitors of different productivity, ad valorem and per‐unit royalty licensing. This paper finds that ad valorem royalty licensing is superior to per‐unit royalty licensing for the patent‐holding firm when the cost‐reducing innovation is non‐drastic. The reason for this result is that cross ownership reduces output market competition and thus the patent‐holding firm enjoys better profit margins by strategically setting the share ratio. Furthermore, we show that the relieved competition under ad valorem royalty licensing pulls down the industry output, and thus hurts consumer surplus and social welfare in comparison to per‐unit royalty licensing.

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Ad Valorem Versus Per‐unit Royalty Licensing in a Cournot Duopoly Model

Hsu

Liu

Wang

et al. 2019

The Manchester School

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“…(), Bagchi and Mukherjee (), Kitagawa et al . (), and San Martin and Saracho (). On the other hand, we also discuss results under the Levitan–Shubik demand system for the robustness check in the Discussion and Conclusion section.…”

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Mixed Competition and Patent Licensing

Chang

Lin

2015

Australian Economic Papers

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This paper studies the patent licensing decision of an insider patentee when two firms engage in a mixed (Cournot-Bertrand or Bertrand-Cournot) competition where one firm adopts the quantity strategy while the other uses the price strategy and vice versa. If either the fixed fee or royalty is applied, then the licensor prefers the fixed fee when the licensor takes the quantity strategy, while the licensee uses the price strategy (Cournot-Bertrand). If the two-part tariff is applied, then the two-part tariff is more likely to be adopted by the licensor under Cournot-Bertrand than under Bertrand-Cournot competition.JEL classification: L13, L22, D43 I . I n t r o d u c t i o nMost of the existing literature on the firm's strategic competition assumes that the firms use the same type of strategy -for example, quantity competition or price competition. Cournot competition is the famous quantity versus quantity competition, while Bertrand competition is the famous price versus price competition. However, in the real business world, it is not necessary for firms in the same industry to use the same type of strategy. If one firm uses the quantity strategy while the other uses the price strategy, then this competition can be called a Cournot-Bertrand mixed competition. 1 Sato (1996) pointed out that in Japan's home electronics market, Matsushita tends to use the quantity strategy, while Sanyo prefers to use the price strategy. Tremblay et al. (2013) noted that in the automobile industry, Saturn and Scion adopt the price strategy, while Honda and Subaru adopt the quantity strategy.In addition to the duopolistic competition with a symmetric competition strategy, Singh and Vives (1984) further analysed mixed competition strategies (Cournot-Bertrand). They allowed a firm to endogenously choose quantity or price to be their own optimal competition strategy. However, since the main purpose of the paper is to examine the effects of mixed competition on patent licensing decision, here the endogenous choice of the optimal competition strategy will not

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“…San Martín and Saracho () extend the analysis to differentiated products. Boccard () shows that the result by San Martín and Saracho () holds also in the case of an outsider patentee, even in the absence of demand uncertainty, provided that there is no a unique potential licensee.…”

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“…The equilibrium third‐stage quantities are those derived in San Martín and Saracho (), under a linear demand function of this type: P i = a − q i − θq − i .…”

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Patent Licensing with Bertrand Competitors

Colombo

Filippini

2014

The Manchester School

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This paper analyses an optimal two‐part licensing scheme based on ad valorem royalties within a differentiated Bertrand duopoly where the innovator is also the downstream producer, and compares it with the optimal two‐part per‐unit royalty mechanism. After showing that the optimal two‐part ad valorem licensing scheme reduces to a pure ad valorem royalty scheme, we show that per‐unit contracts are typically preferred to ad valorem contracts by the patentee, as, under price competition, the per‐unit royalty has a stronger strategic effect than the ad valorem royalty. In contrast, welfare is higher under the ad valorem contract than under the per‐unit mechanism.

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Optimal Two‐part Tariff Licensing Mechanisms

Cited by 34 publications

References 33 publications

Ad Valorem Versus Per‐unit Royalty Licensing in a Cournot Duopoly Model

Ad Valorem Versus Per‐unit Royalty Licensing in a Cournot Duopoly Model

Mixed Competition and Patent Licensing

Patent Licensing with Bertrand Competitors

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