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

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.