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We consider a symmetric homogeneous Cournot duopoly operating under increasing marginal costs. One of the firms owns a patented superior technology that reduces the intercept of the marginal cost function. We compare the incentives of the insider patentee to license the technology to the rival firm either through a fixed fee or through a royalty. We obtain that royalty licensing does not necessarily dominates in our setting: when decreasing returns are important, a royalty is superior only for small enough innovations, whereas a fixed fee is chosen for large innovations. Aditionally, we show that our model is able to replicate the results in Wang (2002), which analyzes the same question in a differentiated duopoly with constant marginal costs.

We consider a symmetric homogeneous Cournot duopoly operating under increasing marginal costs. One of the firms owns a patented superior technology that reduces the intercept of the marginal cost function. We compare the incentives of the insider patentee to license the technology to the rival firm either through a fixed fee or through a royalty. We obtain that royalty licensing does not necessarily dominates in our setting: when decreasing returns are important, a royalty is superior only for small enough innovations, whereas a fixed fee is chosen for large innovations. Aditionally, we show that our model is able to replicate the results in Wang (2002), which analyzes the same question in a differentiated duopoly with constant marginal costs.

In this paper we derive the optimal two-part tariff contract for the licensing of a cost-reducing innovation to a differentiated goods industry of a general size. We analyze the cases where the patentee is an independent laboratory or an incumbent firm. We show that, regardless of the number of firms, the degree of product differentiation and the type of patentee, the innovation is licensed to all firms. Moreover, we endogenize research and development (R&D) investment and obtain that an internal patentee invests more (less) in R&D when the technological opportunity is low (high), which is supported by an empirical test using data on R&D expenditures of Spanish manufacturing firms.

In this paper we derive the optimal two-part tariff contract for the licensing of a cost-reducing innovation to a differentiated goods industry of a general size. We analyze the cases where the patentee is an independent laboratory or an incumbent firm. We show that, regardless of the number of firms, the degree of product differentiation and the type of patentee, the innovation is licensed to all firms. Moreover, we endogenize research and development (R&D) investment and obtain that an internal patentee invests more (less) in R&D when the technological opportunity is low (high), which is supported by an empirical test using data on R&D expenditures of Spanish manufacturing firms.