Optimal Two-Part Tariff Licensing under Returns to Scale


  • A. Karakitsiou
  • A. Mavrommati


Patent Licensing, Royalty, Ad-valorem, two tarrif, Cournot Duopoly, Game Theory


In this study we investigate a two-part tariff licensing contract that enables an incumbent innovator to license a cost reducing innovation in a Cournot duopoly characterized by non-constant returns to scale. We identify the optimal two-part tariff licensing contract based on the cost reduction imposed by the use of the new technology and the market parameter.


Arrow, K.J. 1962. “Economic welfare and the allocation of resources for inventionâ€, in R. Nelson (Ed.), The rate and direction of inventive activity: Economic and social factors, Princeton University pp.609--625

Bousquet, A., Cremer, H., Ivaldi, M. and Wolkovicz, M. (1998). “Risk sharing in licensingâ€, International Journal of Industrial Organization, Vol. 16, pp 535-554.

Colombo, S. and Filippini, L. 2014. “Patent Licensing with Bertrand Competitorsâ€, The Manchester School DOI: 10.1111/manc.12050.

Fauli-Oller, R. and Sandonis, J. 2002. “Welfare Reducing Licensingâ€, Games and Economic Behavior, Vol. 41, pp. 192-205.

Filippini, L. 2005. “Licensing Contract in a Stackelberg Modelâ€, The Manchester School, Vol. 73, pp. 582-598.

Kamien, M. 1992. “Patent Licensingâ€, in R. J. Aumann and S. Hart (eds), Handbook of Game Theory, Amsterdam, Elsevier Science, 1, pp. 331--354.

Kamien, M., Oren, S. and Tauman, Y. 1992. “Optimal licensing of cost reducing innovationâ€, Journal of Mathematical Economics, Vol. 21, pp. 483-508.

Kamien, M.I., and Tauman, Y. 1986. “Fees versus royalties and the private value of a patent†Quarterly Journal of Economics, Vol. 101, pp. 471-491.

Kamien, M.I. and Tauman, Y. 2002. “Patent licensing: the inside storyâ€, The Manchester School, Vol. 70, pp. 7-15.

Karakitsiou, A. and Mavrommati, A. 2013. “Ad-valorem and Royalty Licensing Under Decreasing Returns to Scaleâ€, Asian Journal of Business and Management, Vol. 1, pp. 14-20.

Katz, M. and Shapiro, C. 1986. “How to License Intangible Propertyâ€, Quarterly Journal of Economics, Vol. 101, pp. 567-590.

Kitagawa, T., Masuda, Y. and Umezawa, M. 2014. “Patent strength and optimal two-part tariff licensing with a potential rivalâ€, Economic Letters, Vol. 123, pp. 227-231

Rostoker, M. 1984. “A survey of corporate licensingâ€, IDEA, Vol.24, pp. 59-92.

San Martin, M. and Saracho, A.I. 2010. “Royalty licensingâ€, Economics Letters, Vol. 107, pp. 284--287.

San Martin, M. and Saracho, A.I. 2014, “Optimal Two-part Tariff Licensing Mechanismsâ€, The Manchester School, DOI: 10.1111/manc.12059.

Sen, D. and Tauman, Y. 2007. “General Licensing Schemes for a Cost reducing Innovationâ€, Games and Economic Behaviour, Vol. 59, pp. 163-186.

Sen, D. and Stamatopoulos G. 2009. “Technology transfer under returns to scaleâ€, The Manchester School, Vol. 77, pp. 337-365.

Wang, X.H. 1998. “Fee versus royalty licensing in a Cournot duopoly modelâ€, Economics Letters, Vol. 60, pp. 55-62.

Wang, X. H. 2002. “Fee versus royalty licensing in a differentiated Cournot duopolyâ€, Journal of Economics and Business, Vol. 54, pp.253-266.

Wang, X. H. and Yang, B. Z. 1999. “On Licensing under Bertrand Competitionâ€, Australian Economic Papers, Vol. 38, pp. 106-119.




How to Cite

Karakitsiou, A., & Mavrommati, A. (2015). Optimal Two-Part Tariff Licensing under Returns to Scale. Asian Journal of Business and Management, 3(1). Retrieved from https://ajouronline.com/index.php/AJBM/article/view/2272