Technology Licensing, Network Externalities and Social Welfare in Cournot Differentiated Duopoly

ABSTRACT The present paper establishes a horizontal differentiated‐good Cournot duopoly with an inside patent‐holding firm (licensor) under general network externalities to examine the superiority of fixed‐fee licensing versus royalty licensing. We find that for the licensor, royalty licensing is superior to fixed‐fee licensing if the network effect is weak and the degree of product differentiation is low. In addition, both consumer surplus and social welfare are higher under fixed‐fee licensing in the presence of network externalities.