Decentralized of licensing of complementary patents: comparing royalty, fixed fee and two part tariff

This paper analyzes how an inventor should fix the licensing terms to license a standard in complying with a non-discrimination requirement. Using a model incorporating imperfect competition between a finite number of users and product differentiation, we compare three different regimes: fixed fee (also known as royalty free), per unit royalty and two-part tariff. We highlight the different effects of each design on prices and number of varieties. We identify which one dominates with respect to the licensor's profit and total welfare. Finally we extend our model to a setting where the standard is protected by several licenses owned by non-cooperating owners.