Technology Transfer and Imitation in a Cournot Oligopoly

I examine and compare patent licensing through a fixed fee and a per-unit royalty under Cournot competition. I consider licensing by an incumbent patent owner to one or two other competing firms that can obtain a patented technological improvement through a technology transfer or imitation.Assuming that imitation is perfect, certain, instantaneous, and aims not to risk infringement, I analyse the effects of licensing on market structure, firms’ individual profits, and consumers’ surplus. I show that licensing through a per-unit royalty might be preferable to licensing through a fixed fee for a patent owner, while fixed-fee licensing might be at least as good as royalty licensing for consumers. Additionally, the patent owner might also use licensing to prevent imitation, but cannot use it selectively to affect competition, at least before the patent expires and when one of the competing firms can imitate