Game Analysis On Technology Licensing Under R&D Uncertainty, Network Effect And Weak Patent Effectiveness

There are significance of both for research on technology licensing which is today's one of most rapid and effective ways to improve ability of enterprises' technological innovation, besides independent innovation. Firstly, as far as Chinese enterprises are concerned, owing to the overall weak R&D capability, if we encourage all enterprises to innovate blindly, negative results can arise, even outweigh benefits. With technology licensing, the gap between our country firms and foreign high R&D efficient enterprises is possible to shorten, ability of Chinese enterprises' independent innovation can be improved and prepare for further leapfrog. Such the example worthy learning is that Japan in last decades caught up Europe and paralleled United States experience After World Warâ…¡. Secondly, Chinese enterprises with high ability to innovate need to consider how to leap R&D investment and obtain much economic profit. Technology licensing is one of feasible paths to resolve such questions as shorten cost gap between china vs. others developed country and increase return on investment. In general, designs of technology licensing contracts include licensing mechanism and number of licenses mainly. Therefore, how to design the optimal technology licensing contract is becoming a subject worthy of further study.Based on oligopoly theory, theory of industrial organization, game theory, and technology licensing theory, this paper makes a detailed and thorough research upon technology licensing behavior of incumbent innovative enterprise and outsider innovative institution at different stages (including R&D pro-success, R&D success but patent effectiveness pro-validation, patent effectiveness validation on normal-product market and network-product market and open market with R&D policy interference)with the combination of quantitative and qualitative methods, specially making use of backward induction to solve the sub-game perfect solution usually in non-cooperative game theory.Because of R&D outcome is uncertainty before R&D success, possibility of R&D success may affect the choice of optimal technology licensing. Chapter 2 in the paper establishes a three-stage duopoly game model, and makes conclusions that:licensor should base on possibility of R&D success and R&D spillover, and thus determine level of R&D investment in order to choose different licensing strategies.When patents have not validated after R&D success, R&D investment becomes a sunk cost. Weak patent effectiveness is paid much attention at this stage because potential licensees who refused licensor's offer may assert the patent invalid through litigation. The paper has also confirmed part of conclusions of Farrell, and Shapiro (2008), but overcompensation question which may result in lemon market for weak patent arises only under certain conditions. Finally, counter-measures that prohibiting patent-holder refusing to license technology to unsuccessfully challenger and encouraging potential licensees to establish strategic litigation alliance for challenging the authority, are proposed to solve overcompensation.The paper makes some conclusions that combinations with product heterogeneity, R&D spillover, enterprise absorptive capacity, innovation size, cost difference between enterprises after innovation and bargaining power of innovative enterprise, have crucial effect on choice of optimal licensing strategy of incumbent in normal product market after patent effectiveness validation. In network product market, market size, degree of product substitution, network strength, market concentration and R&D efficiency play a key role in decision on both choices of the optimal licensing strategy of incumbent firms and number of licenses. This paper also verify conclusion that two-part tariff licensing in non-binding constraint is optimal licensing in normal product market,which not always hold in network product market. Finally we explain the coexistence of a variety of licensing mechanisms in reality.When external intervention (government R&D policy) is present, government R&D subsidy policy will from change to change according to competitive market (licensor's market, licensees' market or third-party market), as well as such key factors as innovation size, thereby affecting corporate R&D motivation and licensing behaviors.