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‘To sell or not to sell’: Licensing versus selling by an outside innovator |
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| Institution: | 1. Faculdade de Ciências e Tecnologia, Universidade Nova de Lisboa, Portugal;2. New York University, United States;3. CEPR, United Kingdom;4. Faculdade de Economia, Universidade do Porto, Portugal;5. CEFAGE-FCT/UNL;6. Center for Economics and Finance, Universidade do Porto, Portugal;1. Department of International Business, Ming Chuan University, No.250, Sec. 5, Zhongshan N. Rd., Shilin Dist., Taipei City 111, Taiwan, ROC;2. Department of Economics, National Taiwan University, No.1, Sec. 4, Roosevelt Rd., Da''an Dist., Taipei City 106, Taiwan, ROC;3. RCHSS, Academia Sinica, No.128, Sec. 2, Academia Rd., Nangang Dist., Taipei City 115, Taiwan, ROC;4. Nottingham University Business School, University Park, Nottingham NG7 2RD, UK;5. CFGE, Loughborough University, Leicestershire LE11 3TU, UK;6. CESifo, and INFER, Poschingerstr. 5 81679 München, Germany;7. RCIE, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong;8. Department of International Business, Ming Chuan University, No.250, Sec. 5, Zhongshan N. Rd., Shilin Dist., Taipei City 111, Taiwan, ROC |
| Abstract: | We study various modes of technology transfer of an outside innovator in a spatial framework when the potential licensees are asymmetric. In addition to different licensing options, we also look into the option of selling the property rights of innovation and find the optimal mode of technology transfer. For licensing we find the optimal policy is to offer pure royalty contracts to both licensee firms when cost differentials between the firms are relatively small compared to the transportation cost, otherwise offer a fixed fee licensing contract to the efficient firm only. Interestingly, we show the innovator is always better-off selling the innovation to any one of the firms who further licenses it to the rival firm. The result holds irrespective of the size of the innovation (drastic or non-drastic) and the degree of cost asymmetry between the licensees. Social welfare is greater under selling than licensing. |
| Keywords: | Outside innovator Cost-reducing innovation Patent licensing Patent selling Welfare Linear city model D43 D45 L13 |
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