RT Journal Article
T1 Sale versus licensing of a cost-reducing innovation by an outside patentholder
A1 Antelo Suárez, Manel
A1 Bru, Lluís
K1 Outside patentholder
K1 Cost-reducing innovation
K1 Outright sale versus licensing
K1 Per-unit and ad-valorem royalties
K1 Welfare
AB We investigate an outside patentholder's choice between selling and licensing a cost-reducing innovation to firms that produce differentiated goods in a Cournot duopoly. Sale implies the transfer of ownership rights, whereas licensing—by the patentholder directly or by any assignee—occurs through an endogenously chosen two-part tariff contract. We find that the patentholder has an incentive to sell the innovation (to a single firm that, in turn, licences it to its competitor) only when the goods are close substitutes and the innovation size is sufficiently minimal. Otherwise, the patentholder prefers to licence the innovation to both firms. Although the transfer of innovation, whether through outright sale or licensing, always improves aggregate welfare compared with the pre-transfer scenario, consumer surplus is reduced when the transfer is made by means of sales. Therefore, a socially optimal public policy should aim at banning the sale of outside innovations or, at least, preventing their subsequent licensing by the assignee from within the industry.
PB Elsevier
SN 10.1016/J.ECONMOD.2025.107422
SN 0264-9993
YR 2026
FD 2026
LK https://hdl.handle.net/10347/45009
UL https://hdl.handle.net/10347/45009
LA eng
NO Antelo, M., & Bru, L. (2025). Sale versus licensing of a cost-reducing innovation by an outside patentholder. Economic Modelling, 107422.
NO Financial support is acknowledged from the Consellería de Cultura, Educación e Ordenación Universitaria (Xunta de Galicia) through grant GRC 2023 (GI-2060 AEMI) for Manel Antelo and from the Spanish Ministerio de Economía e Innovación through grant PID 2020-115018RB-C33 for Lluís Bru.
DS Minerva
RD 20 may 2026