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Does Upfront Payment Reduce Running Royalty Rate? Theoretical Perspectives And Empirical Analysis

Jiaqing “Jack” Lu

Applied Economics Consulting Group, Inc., Sr. Economist and Director of Economic Analysis, Austin, TX

Running Royalty Rate and Upfront Payment: Theory and Reality

This study continues the empirical approach of royalty rate study as set in a series of papers I authored or coauthored in recent years. In these previous studies, the research efforts were concentrated on the fundamental story of royalty rate determination, investigating the economic role played by major factors such as profitability, industry performance, and market structure.

The focus of this paper is shifted to the structural side of licensing transaction and royalty payment, and devoted to one of the important structural issues, i.e., the interaction between upfront payment and running royalty rate. While the combination of upfront payment and running rate is one of the frequently-adopted payment methods, there is little research on the interaction between the two.

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