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Licensing to a More Efficient Rival
Author(s) -
Anderson Fridtjof
Publication year - 2014
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.12036
Subject(s) - licensee , subsidy , tariff , economics , microeconomics , unit cost , unit (ring theory) , product differentiation , product (mathematics) , industrial organization , license , international trade , computer science , market economy , cournot competition , mathematics , mathematics education , geometry , operating system
This paper studies licensing of a cost‐reducing innovation in an environment with horizontal product differentiation where the licensee is the most efficient firm in absence of the innovation. We derive the optimal two‐part tariff and show that when we allow for negative royalty rates, the optimal contract may involve the patentee paying its rival a per‐unit subsidy.