This paper develops an incomplete contract model of the licensing relationship that is susceptible to the moral hazard problem. The optimal contractual form of licensing derived in the model generates predictions that seem to be consistent with actual practice. For instance, the introduction of inputs that are not contractible and costly explains the prevalence of royalty contracts in the licen...

Two general forms of standard licensing policies are considered for a non-drastic cost-reducing innovation: (a) combination of an upfront fee and uniform linear royalty, and (b) combination of auction and uniform linear royalty. It is shown that in an oligopoly, the total reduction in the cost due to the innovation for the pre-innovation competitive output forms the lower bound of the payoffs o...

We examine the e¤ect of collective rights organizations (CROs) on upstream innovation. CROs are established to facilitate downstream use, such as production and downstream innovation, of upstream intellectual property, We consider two simple royalty redistribution schemes, two di¤erent innovation environments and two di¤erent antitrust rules. We show that in most cases CROs increase upstream R&...

T paper examines four alternative product strategies available to an innovating firm in markets with network effects: single-product monopoly, technology licensing, product-line extension, and a combination of licensing and product-line extension. We address three questions. First, what factors affect the attractiveness of each of the four product strategies? Second, under what conditions will ...

How do licensing and technology transfer influence the spread of General Purpose Technologies? To answer this question, we analyze diffusion transistor, one most important technologies our time. We show that transistor cross-technology spillovers increased dramatically after AT&T began its patents along with symposia to educate follow-on inventors in 1952. Both these itself played roles diffusi...

The authors present two classroom experiments on technology licensing. first experiment introduces the concept of royalty stacking. Students learn that noncooperative pricing royalties for complementary intellectual property rights leads to a double-marginalization effect. Cooperation solves problem and is welfare-improving. second students cross-licensing. It shows reciprocal payments dampen c...