Licensing Schemes in Endogenous Entry

A Economics Bulletin

Volume 30, Issue 4

Licensing Schemes in Endogenous Entry

Ryoko Oki

Graduate School of Economics, the University of Tokyo

Abstract

This paper examines the optimal licensing scheme when the number of licensees is determined endogenously. We
demonstrate that a license holder obtains monopoly profit even if the license holder uses only a fixed fee as long as the
marginal cost is constant. Furthermore, we show that under free entry of licensees, a license holder can obtain
monopoly profit with any combination of a positive fixed fee and a unit royalty that satisfies a certain condition. Even
if the fixed fee is regulated to be a certain level, a license holder can achieve monopoly profit by means of a unit
royalty. This result is in contrast with that of a case where the number of licensees is exogenously determined.

I would like to thank John P. Conley (the editor), an anonymous referee, Susumu Cato, Hiroaki Ino, Akifumi Ishihara, Toshihiro Matsumura,
and Yuichi Yamamoto for helpful comments and suggestions. The usual disclaimer applies.

Citation: Ryoko Oki, (2010) ''Licensing Schemes in Endogenous Entry'', Economics Bulletin, Vol. 30 no.4 pp. 3237-3247.

Submitted: Sep 02 2010. Published: December 02, 2010.

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