Abstract
This paper extends the work of Wang (2002) by considering a differentiated Stackelberg model, when the leader firm is an inside innovator and licenses its new technology by three options, that is, fixed-fee licensing, royalty licensing, and two-part tariff licensing. The main contributions and conclusions of this paper are threefold. First of all, this paper derives a very different result from Wang (2002). We show that, with a nondrastic innovation, royalty licensing is always better than fixed-fee licensing for the innovator; with a drastic innovation, royalty licensing is superior to fixed-fee licensing for small values of substitution coefficient d; however when d becomes closer to 1, neither fee nor royalty licensing will occur. Secondly, this paper shows that the innovator is always better off in case of two-part tariff licensing than fixed-fee licensing no matter what the innovation size is. Thirdly, the innovator always prefers to license its nondrastic innovation by means of a two-part tariff instead of licensing by means of a royalty; however, with a drastic innovation, the optimal licensing strategy can be either a two-part tariff or a royalty, depending upon the differentiation of the goods.
Highlights
As an important way to realize the technology commercialization strategy, technology licensing exerts important influence on improving products’ market competitiveness, increasing innovation incentives, and enhancing innovation capability
This paper extends the work of Wang (2002) by considering a differentiated Stackelberg model, when the leader firm is an inside innovator and licenses its new technology by three options, that is, fixed-fee licensing, royalty licensing, and two-part tariff licensing
With a nondrastic innovation, royalty licensing is always better than fixed-fee licensing for the innovator; with a drastic innovation, royalty licensing is superior to fixed-fee licensing for small values of substitution coefficient d; when d becomes closer to 1, neither fee nor royalty licensing will occur
Summary
As an important way to realize the technology commercialization strategy, technology licensing exerts important influence on improving products’ market competitiveness, increasing innovation incentives, and enhancing innovation capability. Kishimoto and Muto [14] investigate a Cournot duopoly market in which the licensor negotiates with the licensee about payments for licensing a cost-reducing innovation They find that, in the case of a nondrastic innovation, royalty licensing has an advantage over fixed-fee licensing. Wang et al [15] extend Poddar and Sinha’s [19] work to an oligopolistic model consisting of three cost differential firms in a Cournot framework They show that fixed-fee licensing is better than royalty licensing and two-part tariff licensing if the licensee has a relative production cost advantage, and the optimal licensing contract is royalty or two-part tariff licensing if the licensor has a relative production cost advantage. Issues related to the study of the present paper have been investigated by Wang [12], but the author considers a duopoly differentiated Cournot model and only focuses on comparing fixed-fee licensing and royalty licensing from the viewpoint of the patent-holding firm.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
