Examines the optimal licensing agreement between thepatent holder of a cost-cutting technology and firms that have various uses forthe innovation. This is accomplished through the development of a model ofpatent licensing that integrates two important features largely unexplored inthe...

We analyze the optimal licensing contract that a patentee provides for a cost reducing innovation to a set of firms competing in a downstream market. We study two alternative licensing regimes: (i) a combination of royalties on sales and flat fees and (ii) fixed fees only. The first contract...