LOCATION CHOICE AND PATENT LICENSING

Abstract

This paper studies the patent licensing decision when firms can endogenously choose their locations. If the insider patentee is the location leader, the royalty is not necessarily the best method of licensing. No licensing can be the best method for an insider patentee with a sufficiently high degree of innovation, but fixed-fee is always the worst. However, if the non-innovating firm is the location leader, the royalty licensing is always the best method; moreover, the fixed-fee licensing (no licensing) is the second best method if the degree of innovation is relatively small (sufficiently large).