Taipei, Taiwan: Department of Industrial Economics, Tamkang University
This paper develops a barbell model to take into account trade barriers in exploring the outside patentee's optimal licensing policy under Bertrand competition with homogenous product. Four different contracts, royalty and fixed-fee with exclusive or non-exclusive licensing, are considered. The focus of the paper is on the impact of local monopoly rent generated by trade barriers. It shows that fixed-fee licensing is superior to royalty licensing under Bertrand competition, as trade costs are high irrespective of drastic or non-drastic innovation. It also shows that the outside patentee would select fixed-fee with non-exclusive licensing, as innovation is non-drastic or drastic innovation with sufficiently high trade costs.
2009 International Conference on Trade, Industrial and Regional Economics, 33pages