Revenue royalties

Under the assumption of decreasing returns to scale, we compare several licensing mechanisms - per-unit royalty, an ad valorem royalty, and a revenue-royalty, and combinations with fixed fees - for an insider patentee. In the case of a non-drastic innovation, the patentee maximizes its profits by offering, respectively, an ad valorem royalty, a revenue-royalty and a two-part per-unit royalty, if the cost function is scarcely or highly convex, moderately-low convex, and moderately-high convex. In the case of a drastic innovation, the patentee always offers an ad valorem royalty contract.