RoyaltyStat Blog

Royalty Rates Are Great Ratios

Posted by Ednaldo Silva

In physics, we benefit from the historical development of simple formulae describing basic phenomena, including Newton’s (1687) three laws of motion and the law of universal gravitation. Even the posterior extension of Newton’s second law of motion to accommodate particles moving at high velocities (comparable to the speed of light) has a simple formula. Newton's second law of motion can be interpreted to be a mathematical implementation of an earlier idea attributed to Buridan (1295-1363) that momentum (impetus) is proportional to a particle mass multiplied by its velocity. Buridan's simple definition of momentum finds many analogues in economics, such as the principle that price is proportional to cost, income is proportional to investment, and royalties are proportional to the revenue of the licensee.