Ad-valorem and Royalty Licensing Under Decreasing Returns to Scale
Keywords:Patent Licensing, Royalty, Ad-valorem, Cournot Duopoly, Game Theory
AbstractIn this paper we study the licensing of a cost reducing innovation by an internal patentee.
The analysis considersÂ a Cournot duopoly characterized by non-constant returns to scale.
The patentee chooses strategically whether to charge a per-unit or
an ad-valorem royalty to the other firm in the industry.
Our results indicate that an internal innovator may generate different incentives
for his licensing contract depending on the cost reduction imposed by the use of the new technology.
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