Patent licensing in spatial models

- Optimal patent licensing is considered in spatial models of Salop and Hotelling.
- For the insider patentee optimal license is always a two-part tariff scheme.
- Optimal licensing consists of a fixed fee and per-unit royalty.
- The result is robust to any drastic or non-drastic innovation or cost asymmetries.
- Provides a justification of the prevalence of two-part tariff licensing in reality.

We show that a two-part tariff licensing contract is always optimal to the insider patentee in spatial models irrespective of the size of the innovation or any pre-innovation cost asymmetries. The result provides a simple justification of the prevalence of two-part tariff licensing contracts in industries.