Patent licensing under cost asymmetry among firms

This paper extends Poddar and Sinha's (2010) duopolistic model to an oligopolistic model consisting of three cost differential firms engaging in Cournot competition. The focus of the paper is on the impact of the differences in efficiency among the three firms on the choices of the patentee's optimal licensing contract. By confining the number of licenses to one license only, the paper derives a more comprehensive result than that in Poddar and Sinha (2010). In addition, it shows that the insider patentee may choose pure fixed-fee, mixed or pure royalty licensing regardless of licensing to one or two licensees. This paper also proves that the optimal licensing contract can be either exclusive or non-exclusive, depending upon the relative cost advantage between the two licensees.

► This paper constructs an oligopolistic model with three cost differential firms. ► The focus of the paper is on the impact of the differences in firms' efficiency. ► The paper derives a more comprehensive result than that in Poddar and Sinha (2010). ► The insider patentee may choose pure fixed-fee, mixed or pure royalty licensing. ► The optimal licensing contract can be either exclusive or non-exclusive.