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| Volume 3, No. 1,
April 2004
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Optimal Licensing
Strategy: Royalty or Fixed Fee? |
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| Andrea
Fosfuri |
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Department of Business Administration, Universidad Carlos III de
Madrid, |
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Spain and CEPR,
London, U.K |
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Esther Roca |
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ICADE, Spain |
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| Abstract |
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Licensing a
cost-reducing innovation through a royalty has been shown to be
superior to licensing by means of a fixed fee for an incumbent
licensor. This note shows that this result relies crucially on the
assumption that the incumbent licensor can sell its cost-reducing
inno-vation to all industry players. If, for any reason, only some
competitors could be reached through a licensing contract, then a
fixed fee might be optimally chosen. |
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Key words:
licensing contract;
Cournot competition; strategic effects |
| JEL
classification:
D45 |
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