License Auctions with Royalty Contracts for (Winners and) Losers

This paper revisits the licensing of a non–drastic process innovation by an outside innovator to a Cournot oligopoly. We propose a new mechanism that combines a restrictive license auction with royalty licensing. This mechanism is more profitable than standard license auctions, auctioning royalty contracts, fixed–fee licensing, pure royalty licensing, and two-part tariffs. The key features are that royalty contracts are auctioned and that losers of the auction are granted the option to sign a royalty contract. Remarkably, combining royalties for winners and losers makes the integer constraint concerning the number of licenses irrelevant

License Auctions with Royalty Contracts for (Winners and) Losers

This paper revisits the licensing of a non–drastic process innovation by an outside innovator to a Cournot oligopoly. We propose a new mechanism that combines a restrictive license auction with royalty licensing. This mechanism is more profitable than standard license auctions, auctioning royalty contracts, fixed–fee licensing, pure royalty licensing, and two-part tariffs. The key features are that royalty contracts are auctioned and that losers of the auction are granted the option to sign a royalty contract. Remarkably, combining royalties for winners and losers makes the integer constraint concerning the number of licenses irrelevant.patents; licensing; auctions; royalty; innovation; R&D; mechanism design

Technology licensing in a differentiated oligopoly

We show the effects of product differentiation and competition on technology licensing by an outside innovator. Both the innovator and the society are better off under royalty licensing compared to auction (or fixed-fee) if the number of potential licensees is sufficiently large, irrespective of Cournot and Bertrand competition. We find that the relationship between product differentiation and the minimum number of potential licensees that is required to make royalty licensing profitable to the innovator is non-monotonic under Cournot competition, while it is positive under Bertrand competition. Hence, there are degrees of product differentiation for which neither the innovator nor the antitrust authority requires information about the type of product market competition while deciding on the licensing contract. It follows from our analysis that the innovator prefers auction plus royalty licensing (or fixed-fee plus royalty) over either royalty licensing or auction.Auction; Licensing; Royalty; Product Differentiation

An analysis of the Western Australian gold royalty

This article analyzes the modified form of ad valorem royalty recently announced by the WA government in relation to gold production, which features a threshold price below which there is no tax liability and compares this royalty with a profit-based royalty. The level at which the threshold price is set plays an important role in determining the performance of the royalty in relation to its impact on production and the expected level and variability of tax revenue. It is argued that the higher this price is set, the stronger the grounds for preferring a profit-based royalty, eve taking into account the reliability of each form for generating tax revenue.Resource /Energy Economics and Policy,

Licensing a common value innovation when signaling strength may backfire

This paper reconsiders the licensing of a common value innovation to a downstream duopoly, assuming a dual licensing scheme that combines a first-price license auction with royalty contracts for losers. Prior to bidding firms observe imperfect signals of the expected cost reduction; after the auction the winning bid is made public. Bidders may signal strength to their rivals through aggressive bidding, which may however backfire and mislead the innovator to set an excessively high royalty rate. We provide sufficient conditions for existence of monotone bidding strategies and for the profitability of combining auctions and royalty contracts for losers

Technology licensing with strategic tax policy

Despite the important insights it has provided, technology licensing literature remains restrictive by not allowing government policies. We show that in the presence of strategic tax policies, an outside innovator and, more interestingly and in contrast to the existing works, the consumers are better off under royalty licensing compared to auction (or fixed-fee licensing) if the number of potential licensees is sufficiently large. It follows from our analysis that a combination of fixed-fee and output royalty can be preferable to the innovator compared to both royalty licensing and auction (or fixed-fee licensing).Licensing; Tax; Auction; Royalty

Taxes, Technology Transfer, and the R&D Activities of Multinational Firms

Multinational firms that use domestic technologies in foreign locations are required to pay royalties from foreign users to domestic owners. Foreign governments often tax these royalty payments. High royalty tax rates raise the cost of imported technologies. This paper examines the effect of royalty taxes on the local R&D intensities for foreign affiliates of multinational corporations, looking both at foreign-owned affiliates in the United States and at American-owned affiliates in other countries. The results indicate that higher royalty taxes are associated with greater R&D intensity on the part of affiliates, suggesting that local R&D is a substitute for imported technology.

License Auctions with Royalty Contracts for Losers

This paper revisits the standard analysis of licensing a cost reducing innovation by an outside innovator to a Cournot oligopoly. We propose a new mechanism that combines elements of a license auction with royalty licensing by granting the losers of the auction the option to sign a royalty contract. The optimal new mechanism eliminates the losses from exclusionary licensing without reducing bidders’ surplus; therefore, it is more profitable than both standard license auctions and pure royalty licensing. We also take into account that the number of licenses must be an integer, which is typically ignored in the literature

Mineral Royalties: Historical Uses and Justifications

Governments and private landowners have collected royalties on mineral resources for centuries. When comprehensive measures to account for the environmental externalities of mineral extraction are politically or practically unavailable, federal and state governments may consider adjusting royalty rates as an expedient way to account for these externalities and benefit society. One key policy question that has not received attention, however, is whether a royalty rate can and should be manipulated in this way, assuming statutory discretion to do so. This article fills that gap by evaluating the argument for increasing federal or state fossil fuel royalty rates through historical, theoretical, and practical lenses. To that end, this article in turn considers the meaning of royalties, the economic justifications for royalties, the legislative history of the implementation of federal royalties, and the considerations that private landowners have relied upon in setting royalties. This article concludes that it would be appropriate for governments to adjust mineral royalty rates to account for negative externalities not otherwise addressed by regulation or to otherwise promote public welfare. Such use of royalties is consistent with the historical record. Royalties have been used as pragmatic policy tools from almost their inception, and federal and state governments have often exercised their existing statutory discretion to adjust mineral royalty rates to promote public welfare

License Auctions with Royalty Contracts for Losers

This paper revisits the standard analysis of licensing a cost reducing innovation by an outside innovator to a Cournot oligopoly. We propose a new mechanism that combines elements of a license auction with royalty licensing by granting the losers of the auction the option to sign a royalty contract. The optimal new mechanism eliminates the losses from exclusionary licensing without reducing bidders’ surplus; therefore, it is more profitable than both standard license auctions and pure royalty licensing. We also take into account that the number of licenses must be an integer, which is typically ignored in the literature.Patents; Licensing; Auctions; Royalty; Innovation; R&D; Mechanism Design