Working Paper: Per unit and ad valorem royalties in a patent licensing game

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

Weblink: http://www.igidr.ac.in/pdf/publication/WP-2020-014.pdf