Optimal license fees for a new product

Morton I. Kamien, Yair Tauman, Israel Zang

Research output: Contribution to journalArticlepeer-review

Abstract

We compare how much profit an inventor of a patented new 'superior' product can realize by licensing its manufacture, for a fixed fee, to an oligopolistic industry producing an 'inferior' substitute. Our analysis is conducted in terms of a three stage noncooperative game involving n + 1 players: the inventor, acting as a Stackelberg leader, and the n firms. Analysis of subgame perfect equilibria in pure strategies of this game disclose the circumtances under which an inventor's optimal behavior ultimately leads to production of both products and when it allows for the production of the 'superior' product only. An extreme case of the latter possibility, namely when the 'superior' product is produced by a monopolist, is characterized also.

Original languageEnglish
Pages (from-to)77-106
Number of pages30
JournalMathematical Social Sciences
Volume16
Issue number1
DOIs
StatePublished - Aug 1988

Keywords

  • Noncooperative game
  • product innovation
  • subgame perfect equilibria

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