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.


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