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‘To sell or not to sell’: Licensing versus selling by an outside innovator
Journal article   Peer reviewed

‘To sell or not to sell’: Licensing versus selling by an outside innovator

Swapnendu Banerjee and Sougata Poddar
Economic modelling, Vol.76, pp.293-304
01/2019
DOI: 10.1016/j.econmod.2018.08.006
url
https://digitalcommons.chapman.edu/economics_articles/222View
Open Access

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Abstract

We study various modes of technology transfer of an outside innovator in a spatial framework when the potential licensees are asymmetric. In addition to different licensing options, we also look into the option of selling the property rights of innovation and find the optimal mode of technology transfer. For licensing we find the optimal policy is to offer pure royalty contracts to both licensee firms when cost differentials between the firms are relatively small compared to the transportation cost, otherwise offer a fixed fee licensing contract to the efficient firm only. Interestingly, we show the innovator is always better-off selling the innovation to any one of the firms who further licenses it to the rival firm. The result holds irrespective of the size of the innovation (drastic or non-drastic) and the degree of cost asymmetry between the licensees. Social welfare is greater under selling than licensing. •Study of patent licensing and selling of an outside innovator with asymmetric licensees in a spatial model.•Royalty is optimal with smaller cost asymmetry between licensees, otherwise fixed fee to the efficient firm is optimal.•For the outside innovator selling the patent payoff dominates licensing.•Above result is true irrespective of the size of innovation and the degree of cost asymmetry.•Social welfare is greater under selling than licensing.
 Cost-reducing innovation Linear city model Outside innovator Patent licensing Patent selling Welfare

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