On the Number of Licenses with Signalling

Abstract

We analyse a two-period licensing game in which a non-producing upstream patent holder licenses an innovation that lasts for two periods to either one or two downstream users. Licensing is made through a payment based on a two-part tariff, namely a fixed fee plus a royalty per output unit. Regarding the innovation value when commercialized by each user (high or low), we compare a symmetric information context where such value is publicly known with a situation in which users have private information about the value, but with their period-1 output signalling that value. We find that the patent holder is more likely to prefer to grant two licenses under signalling than under symmetric information, which highlights the benefits of resorting to market competition between users to reduce the amount of informational rents.