Thursday, May 31, 2018

Patent licensing in the presence of a differentiated good

Jiyun Cao (The School of Economics, Nankai University and Collaborative Innovation Center for China Economy, Tianjin, China) and Uday Bhanu Sinha (Department of Economics, Delhi School of Economics) analyze Patent licensing in the presence of a differentiated good.

ABSTRACT: The existing literature has considered licensing of a patented innovation either in a homogenous good industry or in a differentiated goods industry. We consider the licensing problem between two firms i.e., licensor and licensee producing the homogenous goods when there is a third firm producing a differentiated good in the market. We find that when the costs of non-innovators are not high, the optimal licensing contract depends on the degree of product differentiation and the innovator has more incentive for innovation when it is an insider than when it is an outsider of this market.

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