Abstract
Technology licensing has gained significant attention in literature and practice as a rapid and effective way to improve firm’s capability of technology innovation. In this paper, we investigate a duopolistic service provider competition market, where service providers develop and sell a kind of network product. In this setting, we analyze the innovating service provider’s four licensing strategies: no licensing, fixed fee licensing, royalty licensing, and two-part tariff licensing. The literature suggests that when the network products can be completely substituted, two-part tariff licensing is the optimal strategy of the innovating service provider. We find that when the network products cannot be completely substituted, two-part tariff licensing is not always optimal. The degree of the product differentiation, the intensity of the network effects, and the R&D cost of the potential licensee play a key role in determining the innovating service provider’s optimal licensing strategies.
Highlights
Technology licensing is an important form of technology transfer under patent system and is regarded as a crucial way to gain innovation profits through technology market for patent holder
Technology licensing may shorten the gap between abovementioned firms and those with higher R&D efficiency in developed countries, preparing for further “leapfrog.” Secondly, for those firms with stronger innovation capability and higher R&D efficiency, they should ponder over how to speed up the recovery of R&D investment to obtain higher economic profits, especially after they have patented the core technology
They pointed out that the optimal licensing contract is determined by innovation categories and innovation scale: royalty licensing will be prioritized when it is cheaper than the reduction craft innovation or quality-improving product innovation, two-part tariff licensing will be prioritized when the scale involved is greater than that of craft innovation or vertical product innovation, and fixed-fee licensing will be prioritized when the products are average
Summary
Technology licensing is an important form of technology transfer under patent system and is regarded as a crucial way to gain innovation profits through technology market for patent holder. How do the network intensity and product heterogeneity affect the technology licensing strategy for the innovating firm?. (1) For the innovator provider, no matter whether the market scales are large or small, and as long as the network intensity β is large enough (e.g., β ≥ 0.5), two-part tariff licensing strategy is the same as fixed-fee licensing strategy. As for the innovator provider, the optimal licensing strategy is not always two-part tariff licensing and is different from the case of normal product. When the market scale is very large, the optimal licensing strategy depends mainly on network intensity, product substitute levels, and licensee firm R&D cost. (2) When network intensity is relatively small (e.g., β < 0.5) and the R&D cost is very high, two-part tariff licensing is the optimal licensing strategy of the innovator provider. All proofs are provided in the Appendix
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