Author: Marta Montinaro, Rupayan Pal and Marcella Scrimitore
Title: Per unit and ad valorem royalties in a patent licensing game
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.
Keywords: Licensing, Product Innovation, Bertrand, Cournot, Network Effects
JEL Code: L13, L20, D43