Technological spillover and the time distribution of licenses

The aim of this note is to study the optimal licensing of a non drastic cost reducing patented innovation, if the patent holder facing spillover is not only concerned with the optimal number of licenses, but also with their time distrbution. A simple three agents model, a patentee and two adopting firms, elucidates the conditions under which the patent holder prefers exclusive innovation exploitation, giving rise to a monopoly, non exclusive exploitation giving rise to a duopoly of simultaneous adoption or a mix of exclusive exploitation in the first period and non exclusive one in the second period, giving rise to a diffusion process. The results show that for very small cost reductions the patent holder prefers early simultaneous adoption, whereas diffusion, implying asymmetric adoption, is better if the innovation implies a more substantial cost reduction, coupled with a sufficient spillover. Exclusive license is limited to a consistent innovation with very little spillover.