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Licensing a new product: Fee vs. royalty licensing with unionized labor market

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Arijit Mukherjee

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Labor Economics, xxx (2009) xxx-xxx

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In an economy with unionized labor market, this paper show that the payoff of an outside innovator may be higher under royalty licensing than under fixed-fee licensing and auction, if bargaining power of the labor union is sufficiently high. This result holds for both decentralized and centralized bargaining. It follows from our analysis that a combination of fixed-fee and output royalty can be preferable to the innovator compared to both royalty only licensing and auction (of fixed-fee licensing). This paper also discuss the implications of positive opportunity costs of the licensee.

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