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Optimal Licensing with Asymmetric Cost-reducing

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Working Paper

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In this paper, we study licensing to a duopoly with cost-reducing asymmetry. We find that, under fixed-fee (royalty) licensing, the patent-holder may license her innovation to the less-efficient (more-efficient) firm only if the relative cost-reduction ratio is large (small) enough. In addition, we show that which licensing method is superior to the others depends not only on whether the license firm(s) can gain in efficiency post-licensing but also on whether the patent-holder can authorize efficiently via the licensing method.

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