Patent licensing under financial structure with limited liability

Kuang Cheng Andy Wang, Yi Jie Wang, Wen Jung Liang*, Ming Che Tsai, Chao Cheng Mai

*Corresponding author for this work

Research output: Contribution to journalJournal Article peer-review

2 Scopus citations

Abstract

In a seminal paper, Kamien and Tauman (1986) show that fixedfee licensing is always superior to royalty licensing for the outsider licensor under Cournot competition. However, empirical studies demonstrate that royalty licensing is much more popular than fixed-fee licensing. We attempt to reconcile this controversy by taking into account the financial structure of firms with limited liability. We show that the optimal licensing contract under Cournot competition is royalty licensing if the mean-preserving variance of demand is large, while it is non-exclusive fixed-fee licensing otherwise. Moreover, this result is robust under mixed licensing contract and an oligopolistic market.

Original languageEnglish
Pages (from-to)121-135
Number of pages15
JournalInternational Review of Economics and Finance
Volume46
DOIs
StatePublished - 01 11 2016

Bibliographical note

Publisher Copyright:
© 2016 Elsevier Inc.

Keywords

  • Cournot competition
  • Leveraged firms
  • Licensing means
  • Limited liability
  • Outsider patentee

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