Licensing contract in a Stackelberg model

Luigi Filippini

Research output: Contribution to journalArticlepeer-review

48 Citations (Scopus)


We study optimal linear licensing and its social welfare implications when the innovator (patentee) is an insider that can make capacity/output commitment so as to act as a Stackelberg leader in the output market. We show that (i) the patentee’s profit-maximizing licensing contract is a royalty; (ii) the optimal royalty rate is greater than the cost reduction attained by the licensed technology and is increasing in the number of competitors; (iii) optimal licensing maximizes the likelihood of technology transfer, may reduce social welfare and always makes consumers worse off; and (iv) the innovator benefits from capacity commitment, and the more competitive the output market, the greater the gains it makes by licensing. The opposite holds for consumers.
Original languageEnglish
Pages (from-to)582-598
Number of pages17
JournalManchester School
Publication statusPublished - 2005
Externally publishedYes


  • innovation
  • licensing


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