On the Choice of Royalty Rule to Cover Fixed Costs in Input Joint Ventures

Arbeitspapier

In a model where two competing downstream firms establish an input joint venture (JV), we analyze how different royalty rules for covering fixed costs affect channel profits. Under running royalties (regardless of whether based on predicted or actual output), the downstream firms' perceived marginal costs are above the true marginal costs since fixed costs are incorporated. We find that tougher competition between the JV partners may actually increase channel profit under such a scheme. We also show that running royalties based on predicted output are outperformed by royalties based on actual output, but that lump-sum financing of the JV is preferable if the competitive pressure is weak.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 4332

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Firm Strategy, and Market Performance: General
• Subject: input joint ventures ; competition ; royalty rules

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fjell, Kenneth ; Foros, Oystein ; Kind, Hans Jarle
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/79645
• Last update: 10.03.2025, 11:46 AM CET