In this paper we consider the licensing of a cost-reducing innovation by an outside innovator that uses optimal combinations of upfront fees and royalties in a Cournot duopoly characterized by non-constant returns to scale. The main conclusion of our theoretical analysis is that incidence of...

This paper shows that subsidy can naturally emerge as part of the equilibrium strategy of an innovator of a cost-reducing innovation in a Cournot oligopoly when the innovator is endowed with combinations of upfront fee and royalty. It is further shown that there are robust regions where the...