Fee versus royalty licensing in spatial Cournot competition

This article investigates the optimal licensing mechanism in a spatial model where competitors set quantities and one firm owns a cost-reducing innovation. We show that when the firms spatially discriminate, the innovator gets higher profits by licensing through royalties instead than through a fixed fee, whereas in the case of uniform delivered quantities, the innovator prefers licensing by royalties (fixed fee) if and only if it has not (has) a sufficiently strong locational disadvantage with respect to the potential licensee.