On the Optimality of Patent Licensing with Maximum Production Volume

This paper compares alternative licensing schemes of a patentor, that is, at the same time, a producer within an industry. The licensing scheme can assume the form of a royalty per unit of output, a fixed fee, or a fixed fee with maximum authorized production. We show that, when the innovation is non-drastic, in a duopolistic Cournot competition, the third method dominates the others. As the patentor has strong incentives to limit the output of the opponent, this practice must be carefully monitored by the antitrust authority.