Optimal Two-part Tariff Licensing Mechanisms

Authors

  • Marta San Martín,

    1. University of the Basque Country UPV/EHU
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  • Ana I. Saracho

    1. University of the Basque Country UPV/EHU
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    • We are indebted to three anonymous referees and the editor Pierre Picard for helpful comments. Financial support from Spanish Ministry of Economy through grants ECO 2009-07939 and ECO 2012-31626 and from the Departamento de Educación, Universidades e Investigación del Gobierno Vasco IT-223-07 and Departamento de Educación, Política Lingüística y Cultura del Gobierno Vasco IT-869-13 is gratefully acknowledged. Any errors are ours alone.

Abstract

This paper studies the optimal two-part tariff licensing contract for an internal patentee in a differentiated Cournot duopoly. We find that the type of the royalty payment, whether ad valorem or per-unit, that it is optimal for the patentee depends on the kind of goods produced in the industry, more precisely on whether they are substitutes or complements and on the degree of product differentiation. We also find that licensing always increases social welfare, although it may hurt consumers.

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