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Revenue royalties: comment

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Abstract

We show that the comparison of the two-part licensing mechanisms considered in the San Martín and Saracho (2015) context is exactly identical to that in Colombo and Filippini (J Econ 118:47–76, 2016) context. This means that the results obtained in Colombo and Filippini (J Econ 118:47–76, 2016) when the patentee chooses between per-unit and ad valorem royalties are incorrect. We conclude that when the convexity of the cost function is not too low, the patentee prefers to license by means of a royalty on the value of sales.

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Notes

  1. When the production cost after the innovation is zero, as is the case in SMS, revenue royalty contracts and ad valorem royalty contracts cannot be distinguished. In CF, firms produce with strictly convex costs and after the innovation production costs are positive. As a consequence, in that context, it is possible to distinguish between both kinds of mechanisms.

References

  • Colombo S, Filippini L (2016) Revenue royalties. J Econ 118:47–76

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  • San Martín M, Saracho AI (2015) Optimal two-part tariff licensing mechanisms. Manch School 83:288–306

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  • Vives X (1999) Oligopoly princing: old ideas and new tools. MIT Press, Cambridge

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Authors and Affiliations

  1. Dpto. de Análisis Económico, University of the Basque Country UPV/EHU, Avda. Lehendakari Agirre 83, 48015, Bilbao, Spain

    Marta San Martín & Ana I. Saracho

  2. BRiDGE Group, University of the Basque Country UPV/EHU, Bilbao, Spain

    Marta San Martín & Ana I. Saracho

Authors
  1. Marta San Martín
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  2. Ana I. Saracho
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Correspondence to Ana I. Saracho.

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Financial support from Spanish government, Grants ECO 2015-66027-P and PID2019-106146GB-I00 and from the Departamento de Educación, Universidades e Investigación del Gobierno Vasco IT-869-13 and IT-1367-19 is gratefully acknowledged. Any errors are ours alone.

Appendix

Appendix

See the Tables 1 and 2.

Table 1 Numerical example with a two-part per-unit contract, pure ad valorem and pure revenue
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Table 2 Numerical example with two-part per-unit, ad valorem and revenue contracts
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San Martín, M., Saracho, A.I. Revenue royalties: comment. J Econ 132, 187–192 (2021). https://doi.org/10.1007/s00712-020-00721-9

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  • DOI: https://doi.org/10.1007/s00712-020-00721-9

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