Optimal patent licensing—Two or three‐part tariff

Banerjee, Swapnendu; Mukherjee, Arijit; Poddar, Sougata

Abstract

We look into technology transfer by an insider patentee in a spatial duopoly model under three types of licensing contracts—(i) two-part tariff with fixed fee and per-unit royalty, (ii) two-part tariff with fixed fee and ad-valorem royalty and (iii) general three-part tariff with fixed fee, per-unit and ad-valorem royalties. Under two-part tariff contracts, the licenser is better off with the per-unit royalty contract but the general contract does better than the other contracts. In contrast to the existing literature, all three licensing contracts may make the consumers worse-off compared to no licensing, with the lowest consumer surplus achieved under the general licensing contract. Welfare under the general licensing contract is equal to the welfare under two-part tariff with ad-valorem royalty and it is higher than the welfare under no licensing but lower than the welfare under two-part tariff with per-unit royalty. Hence, the general three-part licensing contract is privately optimal but not socially optimal. Similar conclusions hold also under a nonspatial linear demand model with differentiated products.

Citation

Banerjee, S., Mukherjee, A., & Poddar, S. (2022). Optimal patent licensing—Two or three‐part tariff. Journal of Public Economic Theory, https://doi.org/10.1111/jpet.12630

• Journal Article Type: Article
• Acceptance Date: Oct 25, 2022
• Online Publication Date: Dec 13, 2022
• Publication Date: Dec 13, 2022
• Deposit Date: Oct 28, 2022
• Publicly Available Date: Dec 13, 2022
• Journal: Journal of Public Economic Theory
• Print ISSN: 1097-3923
• Electronic ISSN: 1467-9779
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1111/jpet.12630
• Keywords: Economics and Econometrics; Sociology and Political Science; Finance
• Public URL: https://nottingham-repository.worktribe.com/output/12900321
• Publisher URL: https://onlinelibrary.wiley.com/doi/10.1111/jpet.12630