Patent Licensing and Entry Deterrence: The Role of Low Royalties

2020

Int. Game Theory Rev.

When an outside innovating firm has a cost-reducing technology, it can sell licenses of its technology to incumbent firms, or enter the market and at the same time sell licenses, or enter the market without license. We examine the definitions of license fees in such situations under oligopoly with three firms, one outside innovating firm and two incumbent firms, considering threat by entry of the innovating firm using a two-step auction.

Section: Literature Reviewmentioning

confidence: 99%

License Fees in Oligopoly When Outside Innovator can Enter the Market: Two-Step Auction

2020

Int. Game Theory Rev.

“…Regarding the strategies of new entrants to the market, Duchene et al (2015) focuse on future entrants with old technology, and argue that a low license fee can be used to deter the entry of potential entrants. However, the firm with new technology is incumbent, and its choice of entry is not analyzed.…”

Section: Concise Literature Reviewmentioning

confidence: 99%

License and entry strategies for an outside innovator in Stackelberg duopoly with royalty and fixed fee under vertical differentiation**

Int J of Economic Theory

2019

We examine a choice of options for an outside innovating firm in Stackelberg duopoly under vertical differentiation. The options for an innovating firm are to enter the market with or without licensing its technology for producing a higher‐quality good by a combination of royalty and fixed license fee, and to license its technology without entry. When the innovating firm licenses its technology to the incumbent firm without entry, its optimal royalty rate is zero. When the innovating firm enters the market with a license to the incumbent firm, and the cost function is strictly concave, its optimal royalty rate is one such that the incumbent firm drops out of the market with a negative fixed license fee. If the cost function is strictly convex, there is an internal solution of the positive optimal royalty rate with positive or negative fixed license fee. Without entry cost, if the cost function is strictly concave, the entry without license and entry with license strategies are optimal, and if it is strictly convex, the entry with license strategy is optimal.

Section: Quadratic Cost Functionsmentioning

confidence: 99%

License and Entry Strategies for an Outside Innovator Under Duopoly with Combination of Royalty and Fixed Fee

2018

J Ind Compet Trade

We consider a choice of options for an innovating firm to enter the market with or without licensing its new cost-reducing technology to the incumbent firm using a combination of a royalty per output and a fixed license fee, or to license its technology without entry. With general demand and cost functions we show the following results. When the innovating firm licenses its technology to the incumbent firm without entry, the optimal royalty rate per output for the innovating firm is zero with negative fixed fee, and when the innovating firm enters the market and at the same time licenses its technology to the incumbent firm, the optimal royalty rate is positive with positive or negative fixed fee. Also we show that when cost functions are concave, the optimal royalty rate is one such that the incumbent firm drops out of the market and license without entry strategy and entry with license strategy are optimal for the innovator; and when cost functions are strictly convex, there is an internal solution of the optimal royalty rate under duopoly and entry with license strategy is optimal for the innovator.