Patent Licensing and Capacity in a Cournot Model

Stefano Colombo; Luigi Filippini; Debapriya Sen

doi:10.1007/s11151-022-09886-7

Patent Licensing and Capacity in a Cournot Model

Rev Ind Organ. 2023;62(1):45-62. doi: 10.1007/s11151-022-09886-7. Epub 2022 Nov 17.

Authors

Stefano Colombo¹, Luigi Filippini¹, Debapriya Sen²

Affiliations

¹ Università Cattolica del Sacro Cuore, Largo Gemelli 1, 20123 Milan, Italy.
² Ryerson University, 350 Victoria Street, Toronto, ON Canada.

Abstract

We consider the problem of patent licensing in a Cournot duopoly in which the innovator (patentee) is one of the firms and it is capacity constrained. We show that when the patentee can produce a relatively small (relatively large) quantity, it prefers licensing by means of a fixed fee (unit royalty). When the patentee can set two-part tariffs in the form of combinations of fixed fees and unit royalties, it charges a positive fixed fee if and only if it is limited to producing a relatively small quantity. We also show that with combinations of fixed fees and royalties, the royalty rate is lower than is true for the standard case.

Keywords: Capacity constraint; Cournot duopoly; Patent licensing.