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Patent Licensing from a High‐Cost Firm to a Low‐Cost Firm *
Author(s) -
PODDAR SOUGATA,
SINHA UDAY BHANU
Publication year - 2010
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2010.00633.x
Subject(s) - cournot competition , duopoly , tariff , insider , microeconomics , industrial organization , production (economics) , economics , production cost , unit cost , business , unit (ring theory) , international trade , mathematics , mechanical engineering , mathematics education , political science , law , engineering
We depart from the standard framework and study optimal patent licensing under Cournot duopoly where the technology transfer takes place from an innovative firm, which is relatively inefficient in terms of cost of production, to its cost‐efficient rival. Interestingly, we find even a drastic technology is licensed and the optimal licensing arrangement always involves a two‐part tariff (i.e. a fixed‐fee plus a linear per unit output royalty). Under non‐drastic innovation, the two‐part tariff is optimal when the cost difference between the firms is moderate. Our framework also helps to bridge the gap between optimal licensing schemes for ‘insider’ and ‘outsider’ patentees.