Fee versus royalty policy in licensing through bargaining: an application of the Nash bargaining solution. (English) Zbl 1254.91230

Summary: We consider a Cournot duopoly market in which the patent-holding firm negotiates with its rival firm about payments for licensing a cost-reducing innovation. Applying the Nash bargaining solution, we compare two licensing policies, a fixed fee and a royalty. Our results are as follows. Royalty licensing is better than fixed fee licensing for both firms if the innovation is not drastic. So, royalty licensing is always carried out. Moreover, though there exists a case in which consumers prefer fixed fee licensing, royalty licensing is always superior to fixed fee licensing from the social point of view.


91B26 Auctions, bargaining, bidding and selling, and other market models
91B54 Special types of economic markets (including Cournot, Bertrand)
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