FEEM working papers "Note di lavoro" series
2020 .14

Per Unit and Ad Valorem Royalties in a Patent Licensing Game


Authors: Marta Montinaro, Rupayan Pal, Marcella Scrimitore
Series: Firms and Cities Towards Sustainability
Editor: Stefano Pareglio
Keywords: Licensing, Product Innovation, Bertrand, Cournot, Network Effects
JEL n.: L13, L20, D43

Abstract

In a context of product innovation, we study two-part tariff licensing between a patentee and a potential rival which compete in a differentiated product market characterized by network externalities. The latter are shown to crucially affect the relative profitability of Cournot vs. Bertrand when a per unit royalty is applied. By contrast, we find that Cournot yields higher profits than Bertrand under ad valorem royalties, regardless of the strength of network effects.

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Suggested citation: Montinaro, M., P. Rupayan, M. Scrimitore, (2020), 'Per Unit and Ad Valorem Royalties in a Patent Licensing Game', Nota di Lavoro 14.2020, Milano, Italy: Fondazione Eni Enrico Mattei

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