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July 15, 2011
Per-Unit Royalty vs Fixed Fee: The Case of Weak Patents
Posted by D. Daniel Sokol
Rabah Amir (University of Arizona - University of Arizona), David Encaoua (CES - Sorbonne, Paris School of Economics - Ecole d'Economie de Paris) and Yassine Lefouili (GREMAQ, Toulouse I) explore Per-Unit Royalty vs Fixed Fee: The Case of Weak Patents.
ABSTRACT: This paper explores a licensor's choice between charging a per-unit royalty or a fixed fee when her innovation is covered by a weak patent, i.e. a patent that is likely to be invali- dated by a court if challenged. Using a general model where the nature of competition is not speci ed, we show that the patent holder prefers to use a per-unit royalty scheme if the strategic e¤ect of an increase in a potential licensee's unit cost on the aggregate equilibrium pro t is positive. To show the mildness of the latter condition, we establish that it holds in a Cournot (resp. Bertrand) oligopoly with homegenous (resp. heterogenous) products under very general assumptions on the demands faced by firms. As a byproduct of our analysis, we contribute to the oligopoly literature by offering some new insights of independent interest regarding the effects of cost variations on Cournot and Bertrand equilibria.
July 15, 2011 | Permalink
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