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Journal ArticleDOI

Fees Versus Royalties and the Private Value of a Patent

01 Aug 1986-Quarterly Journal of Economics (Oxford University Press)-Vol. 101, Iss: 3, pp 471-491
TL;DR: In this paper, the authors compare how much profit an owner of a patent can realize by licensing it to an oligopolistic industry producing a homogeneous product, by means of a fixed fee or a per unit royalty.
Abstract: We compare how much profit an owner of a patented cost-reducing invention can realize by licensing it to an oligopolistic industry producing a homogeneous product, by means of a fixed fee or a per unit royalty. Our analysis is conducted in terms of a noncooperative game involving n + 1 players: the inventor and the n firms. In this game the inventor acts as a Stackelberg leader, and it has a unique subgame perfect equilibrium in pure strategies. It is shown that licensing by means of a fixed fee is superior to licensing by means of a royalty for both the inventor and consumers. Only a "drastic" innovation is licensed to a single producer.

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Citations
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Journal ArticleDOI
TL;DR: A firm's actions in one market can change competitors' strategies in a second market by affecting its own marginal costs in that other market as mentioned in this paper, and whether the action provides costs or benefits in the second market depends on whether it increases or decreases marginal costs.
Abstract: A firm's actions in one market can change competitors' strategies in a second market by affecting its own marginal costs in that other market. Whether the action provides costs or benefits in the second market depends on (a) whether it increases or decreases marginal costs in the second market and (b) whether competitors' products are strategic substitutes or strategic complements. The latter distinction is determined by whether more "aggressive" play (e.g., lower price or higher quantity) by one firm in a market lowers or raises competing firms' marginal profitabilities in that market. Many recent results in oligopoly theory can be most easily understood in terms of strategic substitutes and complements.

2,588 citations

Journal ArticleDOI
TL;DR: In this paper, the authors present a synthetic framework identifying the central drivers of start-up commercialization strategy and the implications of these drivers for industrial dynamics, and link strategy to the commercialization environment, the microeconomic and strategic conditions facing a firm that is translating an idea into a value proposition for customers.

929 citations

Book ChapterDOI
TL;DR: In this paper, the authors examined the extent and timing of the dissemination of a particular innovation and examined the way the expected benefits, the cost of research and development, and interactions among competing firms combine to determine the pattern of expenditure across firms and over time, the date of introduction, and the identity of the innovating firm.
Abstract: Publisher Summary The analysis of the timing of innovation posits a particular innovation and examines the way the expected benefits, the cost of research and development, and interactions among competing firms combine to determine the pattern of expenditure across firms and over time, the date of introduction, and the identity of the innovating firm. In the case of a sequence of innovations, the expected lifetime of a given innovation and the pattern of technological leadership are also determined endogenously. Given that an innovation has been perfected, the extent and timing of its dissemination into use may be examined. This may depend upon a number of factors, including the existence of rival firms and institutions, which may facilitate or retard the dissemination of innovations. The chapter discusses the issues of innovation production in the context of symmetric noncooperative models. The chapter investigates the extent of dissemination of the innovation, where this dissemination is achieved through licensing.

887 citations


Cites background from "Fees Versus Royalties and the Priva..."

  • ...Second, in Kamien and Tauman (1984, 1986), the patent holder is understood to be an independent researcher....

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  • ...Kamien and Tauman (1984, 1986) performed a similar analysis when the downstream product market is oligopolistic, and members make their decisions to license in a strategic manner....

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Journal ArticleDOI
TL;DR: In this article, a new and detailed dataset on licensing contracts is used to present some simple "facts" concerning licensing behavior, such as exclusivity, cross-licensing, exante versus ex-post technology transfers, and licensing to related versus unrelated parties.
Abstract: Industrial organization theory has explored several issues related to licensing, but empirical analyses are extremely rare. We amass a new and detailed dataset on licensing contracts, and use it to present some simple ‘facts’ concerning licensing behavior. Our analysis reveals robust cross-industries differences in several contractual features, such as exclusivity, cross-licensing, ex-ante versus ex-post technology transfers, and licensing to related versus unrelated parties. We offer an interpretation of these facts based on cross-industry variation in the strength of intellectual property rights.

600 citations


Cites background from "Fees Versus Royalties and the Priva..."

  • ...In one of the early studies, Katz and Shapiro [1986] argue that complementarities in consumption may lead ¢rms to license technologies nonexclusively, with the aim of `setting the standard' early on....

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References
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