The Optimal Licensing Strategy of an Outside Patentee in Vertically-Related Markets

Ming-Chung Chang, Jin-Li Hu, Chin-Hung Lin


We extend the model in Kamien and Tauman (1986) by considering vertically-related markets where the outside innovator transfers new technology by means of either a royalty or a fixed fee. Our conclusion is different with Kamien and Tauman (1986) and announces that the optimal licensing strategy for an outside innovator is a royalty contract with a non-exclusion licensing case. When the innovation size is small, the outside innovator’s licensing behavior causes low social welfare.

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International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)  Email:

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