Licensing Innovations with Exclusive Contracts

Licensing Innovations with Exclusive Contracts We analyze licensing contracts specifying an exclusive territory clause and a fixed fee as a form of payment. While commonly observed, the effects of such licensing contracts have not been investigated in the licensing literature. We find that they can generate revenues for an innovator equal to those that would be obtained by a monopolist using the cost-reducing innovation that is being licensed. This result, however, depends on three factors: The size of the market relative to the pre-innovation marginal cost, the quality of the innovation, and the degree of substitutability between the goods being produced in the market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Licensing Innovations with Exclusive Contracts

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Publisher
Springer US
Copyright
Copyright © 2008 by Springer Science+Business Media, LLC.
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-008-9158-z
Publisher site
See Article on Publisher Site

Abstract

We analyze licensing contracts specifying an exclusive territory clause and a fixed fee as a form of payment. While commonly observed, the effects of such licensing contracts have not been investigated in the licensing literature. We find that they can generate revenues for an innovator equal to those that would be obtained by a monopolist using the cost-reducing innovation that is being licensed. This result, however, depends on three factors: The size of the market relative to the pre-innovation marginal cost, the quality of the innovation, and the degree of substitutability between the goods being produced in the market.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Mar 4, 2008

References

  • The structure of licensing contracts
    Anand, B.N.; Khanna, T.

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