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Fee versus royalty licensing in a Cournot duopoly with increasing marginal costs
Author(s) -
FauliOller Ramon,
Sandonís Joel
Publication year - 2022
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12411
Subject(s) - cournot competition , duopoly , marginal cost , economics , microeconomics , homogeneous , license , insider , incentive , fixed cost , computer science , mathematics , combinatorics , political science , law , operating system
We consider a symmetric homogeneous Cournot duopoly operating under increasing marginal costs. One of the firms owns a patented superior technology that reduces the intercept of the marginal cost function. We compare the incentives of the insider patentee to license the technology to the rival firm either through a fixed fee or through a royalty. We obtain that royalty licensing does not necessarily dominates in our setting: when decreasing returns are important, a royalty is superior only for small enough innovations, whereas a fixed fee is chosen for large innovations. Aditionally, we show that our model is able to replicate the results in Wang (2002), which analyzes the same question in a differentiated duopoly with constant marginal costs.