Dynamic patent licensing

Article Abstract:

Assuming that an innovation's success is uncertain, and its life is longer than the life of its patent, the profit-maximizing strategy for patent licensing involves a fixed fee rather than an auction. The licensee will take the risk of the innovation's failure, while the nonlicensee can take advantage of its success after the patent's expiry. If a nonlicensee thus earns more than its licensed rival, the inventor earns more from a fixed fee. Optimal licensing may still be efficient even if the innovation is likely to fail, and may involve a combination of auction and fixed fee.

Finance, Inventions, Technological innovations, Inventors

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The licensing of patents under asymmetric information

Article Abstract:

The process of asymmetric information explains the prevalence of the use of royalty payments rather than fixed fees in patents licensing. Theoretical studies have established the superiority of straight fees over royalties, but empirical research on current licensing arrangements shows that royalties or a mixture of both are far more common. This is traced to the presence of asymmetric information. A unique equilibrium contract is described to account for this behavior of patent licenses.

Research, Royalties, Royalties (Intellectual property)

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Price signals quality: the case of perfectly inelastic demand

Article Abstract:

Products of high quality can very well make it to the market with perfectly inelastic demand in view of the sustained strategy of a fully separating equilibria. While a seller can signal quality with a high price, low-quality sellers cannot sustain their market performance if they will lower their price as high-quality sellers lower their price. This shows that a market with perfectly inelastic demand has no dominant mode of equilibrium.

Market Research, Management, Product quality, Marketing

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