Licensing a Product Innovation : a Spatial Approach

The purpose of or paper is to study licensing policies for the owner of a product innovation in a spatial model. We compare patent holder’s profits when fees are used to extract licensees’ rents both in the cases of noncompetitive ( the licence includes en exclusive territory clause) and competitive ( Hotelling competition) oligopoly. Not surprisingly the licensor prefers the inclusion of the exclusive territory clause. Fees are superior to royalties both from the private and social point of view. Social planner intervention is considered in two ways : either there is a centralized technology purchasing decision or a public body develops the technology. It also chooses whether to include or not the restrictive clause . The policy that maximizes the social welfare function is the social planner developing the technology and the noninclusion of exclusive territories.