| In this paper, we develop a theoretical model where a firm producing a durable good and a firm producing a nondurable good compete in a Cournot fashion. One of the two firms has a cost-reducing innovation. The purpose of this paper is to examine the argument on licensing contracts and the social welfare implications.It is shown that, when the firm producing a durable good is the patent holder, its optimal licensing contract depends on the degree of product differentiation. Specifically, (1) licensing by means of two-part tariff is optimal for high degree of product differentiation. (2) Charging a royalty is preferred when the products are good substitutes.From the social perspective, fixed-fee licensing is always preferred.When the firm producing a nondurable good is the patent holder, its optimal licensing contract depends on the degree of product differentiation as well as the degree of the innovation. From the view of the patent holder, (1) when the degree of substirutability between products is small, licensing by two-part tariff is optimal for small cost-reducing innovation (2) and charging a royalty is preferred for large cost-reducing innovation. (3) As for a large degree of product substitutability, regardless of the level of technological innovation, licensing by means of two-part tariff is the same as licensing by royalty and using a royalty contract is optimal.Under this circumstance, from the social perspective, fixed-fee licensing is superior to licensing by royalty and two-part tariff. |
