The Optimal Licensing Contract in a Differentiated Stackelberg Model
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 concl...
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| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Wiley
2014-01-01
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| Series: | The Scientific World Journal |
| Online Access: | http://dx.doi.org/10.1155/2014/437919 |
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| Summary: | 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. |
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| ISSN: | 2356-6140 1537-744X |