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Giebe, Thomas and Wolfstetter, Elmar G. (April 2007): License Auctions with Royalty Contracts for (Winners and) Losers. SFB/TR 15 Discussion Paper No. 199 [PDF, 206kB]


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.

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