Optimal Licensing of Agricultural Patents: Fees versus Royalties

• Main Authors: Di Fang, Timothy Richards, Bradley Rickard
• Format: Article
• Language: English
• Published: Western Agricultural Economics Association 2015-01-01
• Series: Journal of Agricultural and Resource Economics
• Subjects: agricultural innovation; horticulture; licensing; patents; price competition; royalties
• Online Access: https://ageconsearch.umn.edu/record/197374

We develop a theoretical model of optimal licensing schemes for quality-improving innovations. We consider an oligopolistic market where two downstream firms compete in price and the upstream innovator holds a technology that may create differentiation between the products. Our results show that non-exclusive licensing performs better than exclusive licensing under both fixed fees and royalties and that the preferred contract consists of fixed fees only. We also find that the innovator's license revenue depends on the magnitude of the innovation so there is a greater reward to the innovator's institution if the innovation is large.