Licensing Innovations with Exclusive Contracts |
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Authors: | C Erutku A Priegue Freire Y Richelle |
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Institution: | (1) Economics Department, York University, Glendon Campus, 2275 Bayview Street, Toronto, ON, Canada, M4N 3M6;(2) Département de sciences économiques, Université de Montréal, CP 6128, succursale Centre-ville, Montréal, QC, Canada, H3C 3J6 |
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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.
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Keywords: | Licensing contracts Exclusive territory clause Fixed fee |
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