José Jorge Sempere Monerris

The Relevance of Bargaining for the Licensing of a Cost-reducing Innovation

In the context of a Cournot duopoly, this paper studies the licensing of a cost-reducing innovation by means of three possible allocation mechanisms: auction, fixed fee, and direct negotiation. Once the use of an arbitrary reserve price (which is not credible) has been excluded, it is no longer true that auction always yields higher profit to the patentee than a fixed fee. However, the authors propose a direct negotiation mechanism which restores the patentee’s profit to the level of an auction with an arbitrary reserve price (which is unimplementable). Direct negotiation is superior to both an auction with a nonarbitrary reserve price and a fixed fee. From the social point of view, however, licensing with a fixed fee is the best option.

The patent holder's bargaining power and the licensing of an innovation

A bargaining licensing game is developed to study how the patent holders bargaining power affects his licensing policy as well as the social welfare. Indeed, a modification in the patents holder bargaining power is not innocuous for the economy. Therefore, a social agency that is concerned with a social welfare measure may raise the question of who should hold the bargaining power in order to increase the welfare of the economy. Consumers and the world economy are better off with the complete diffusion of the technology. This is only possible if the patent holder is attributed greater bargaining power than the one attributed to the potential licensees and the size of the innovation is small enough.