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FEE VERSUS ROYALTY POLICY IN LICENSING THROUGH BARGAINING: AN APPLICATION OF THE NASH BARGAINING SOLUTION
Author(s) -
Kishimoto Shin,
Muto Shigeo
Publication year - 2012
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/j.1467-8586.2010.00356.x
Subject(s) - duopoly , microeconomics , cournot competition , payment , economics , point (geometry) , bargaining power , bargaining problem , fixed cost , industrial organization , business , finance , geometry , mathematics
In this paper, we consider a Cournot duopoly market in which the patent‐holding firm negotiates with its rival firm about payments for licensing a cost‐reducing innovation. Applying the Nash bargaining solution, we compare two licensing policies, a fixed fee and a royalty. Our results are as follows. Royalty licensing is better than fixed fee licensing for both firms if the innovation is not drastic. So, royalty licensing is always carried out. Moreover, though there exists a case in which consumers prefer fixed fee licensing, royalty licensing is always superior to fixed fee licensing from the social point of view.