Technology Licensing Policy For The Incumbent Enterprise Under Different Market Structures And Competitive Modes

Technology licensing is not only a significant component of the management of firms’technology innovation and an important form of technology transfer under patent system, but also regarded as a crucial way to gain innovation profits through technology market for patent holder. Technology licensing is regarded as the fastest and the most effective way to improve the firms’technology innovation capability in addition to independent innovation. So, that taking a thorough and broad study on technology licensing has important significance in theory and practice. Through reviews on related literature of technology licensing, we find that there still exist some problems. Firstly, majority of existing literature in firm’s technology innovation assume that the R&D outcome is certain. However, the fact does not always hold. Therefore it is worth discussing and exploring the potential impact of uncertainty of R&D outcome on firms’ innovation and technology licensing. Secondly, the existing literature does not cover the choice of the optimal licensing strategy on the situation of network externalities and consumers with different quality preferences. Thirdly, the study on technology licensing from the viewpoint of supply chain has not been given enough attention, however, systematic study is needed.We firstly investigate the policy implications of licensing between two firms in a differentiated Stackelberg framework when the innovator faces an uncertainty R&D outcome. We establish a three-stage duopoly game model, namely, the R&D stage, the licensing stage and the output stage, to analyze the effect of product differentiation and technology spillover on the optimal licensing policy for a stochastic R&D firm. Our results demonstrate:(1) the merits and demerits of fixed-fee licensing and royalty licensing are closely related to the product differentiation and technology spillover;(2) two-part tariff licensing is superior to fixed-fee licensing and royalty licensing when the technology spillover is low;(3) the optimal royalty rate is dependent on the technology spillover, with the value possibly higher than cost reduction.Secondly, we study the optimal licensing policy in the normal product market when R&D outcome is certain. We extend the work of Wang (2002) by considering a differentiated Stackelberg model. 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 non-drastic 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 to1, 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 mater what innovation size is. Thirdly, the innovator always prefers to license its non-drastic 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. This paper also investigates the licensing decision of the downstream market from the viewpoint of the supply chain. We show that:(1) the entry decision of the entrant in the upstream industry is influence on the entry cost, the licensing decision of the innovator, the technological differences between the downstream firms and the degree of product heterogeneity;(2) whether the innovator of the downstream firm licenses its technology or not is relevant to the scale of the innovation, the technological differences between the downstream firms and the entry decision of the entrant in the upstream industry.Finally, in the network product market when R&D outcome is certain, we establish a multi-stage Stackelberg game model to investigate the optimal licensing policy of the incumbent innovator in the assumption of network externalities and consumers with different quality preferences. We show that:(1) from the perspective of the incumbent innovator, no mater what network effect is, fixed-fee licensing is not the optimal licensing policy, and with the increasing of the network effect, the optimal licensing policy changes from royalty licensing to two-part tariff licensing.(2) From the consumers’perspective, no mater what network effect and product heterogeneity is, no licensing is always the optimal policy; however, when technology licensing occurs, consumer surplus is maximized under fixed-fee licensing, while under royalty licensing the opposite is true.(3) From the perspective of social welfare maximization, no mater what network effect is, royalty licensing is not the optimal licensing policy. In addition, this paper also investigates the impact of the supplier’s wholesale price decision, the intensity of network effect, the market scale and the investment of the potential licensee on the choice of the optimal licensing policy of the incumbent innovator. We show that:(1) from the perspective of the incumbent innovator, no mater what the market scale, the intensity of network effect and the investment of the potential licensee is, two-part tariff licensing is the optimal licensing policy.(2) Royalty licensing and two-part tariff licensing can effectively reduce the ineffectiveness of the supply chain caused by the double marginalization problem, this can realize the coordination of the supply chain to a certain extent.