Per-unit versus ad-valorem royalty licensing in a Stackelberg market

Abstract We consider licensing of a non-drastic innovation by licensor that interacts with potential licensee in Stackelberg duopoly, comparing per-unit and ad-valorem royalty two-part contracts showing why when each deal should be used. contribute three findings to the literature. First, is preferred plays as leader marketplace, but follower. Second, only innovations do not hurt consumers are socially beneficial. Third, our model also suggests both licensor’s status or follower marketplace size determine incentive engage innovative activities.