Optimal licensing schemes for a mixed ownership firm when facing uncertain R&D outcomes and technology spillover

Abstract

In this paper, we develop a mixed Cournot duopoly model to investigate whether and how a mixed ownership firm licenses its non-drastic innovation to the private rival when facing uncertain R&D outcomes and technology spillover. The results show that, (i) in terms of fixed-fee and royalty licensing, the optimal licensing contract is always the fixed-fee when the private share is low, while it is always the royalty when both the private share and product substitutability are sufficiently high. As for other cases, whether the fixed-fee is superior to the royalty also depends on the degree of technology spillover; and (ii) even if the two-part tariff is available for the mixed firm, the fixed-fee alone is still one possible form of the optimal licensing contract. Moreover, the finding also shows that the probability of R&D success plays a critical role in the process of determining the licensing strategy for the mixed firm.