Technology Licensing Based On Noncooperative Oligopoly Model

Technology licensing will play an important role in innovation's commercialization anddiffusion in various industries, with the increasingly furious competition based on innovation,the swift technology development and the more perfect protection on IPR. In technologylicensing, it is a very key issue to study the licensing equilibrium in which all participatingmembers maximize their utility. However, there are hardly any prior theoretical studies ontechnology licensing in today's china. In consideration of the important position of theoligopoly competition in technology innovation and licensing, this dissertation studiestechnology licensing from the applied economics perspective and on the basis of non-cooperative oligopoly model.This research not only fills up domestic blank of technology licensing theory, but alsomakes some useful complements to oversea study in this field. The practical significance ofthis research as follows: it is helpful for innovators to make the optimal licensing strategy;itis useful for domestic enterprises to improve their innovation incentives;it is also availablefor us to promote inner innovation diffusion and bring in outer advanced technology. Thus,this research paper has some theoretical and practical significance.By use of the example of patented cost-reducing process innovation, this dissertationtakes the technology licensing of insider and outsider innovators in various market situationsas the study object, and also discusses the influence of licensing strategy on innovationincentives, consumer surplus and social welfare, etc. The optimal licensing strategy isobtained through solving the game by backward induction.The main research and conclusions of this dissertation are as follows:1. The licensing strategy and corresponding innovation incentives of downstream firmsin a Cournot, a Stackelberg, or a Bertrand duopoly model are examined under three respectiveassumptions that the upstream industry is monopoly, duopoly and perfect competition. It isshowed that: 1) the innovator prefers licensing out all magnitudes of innovation under aappropriate degree of product differentiation, and 2) the stronger the market power of theinput supplier is, the lower the incentive of the downstream firms to win drastic innovation,but the higher the possibility of the innovator to license out its drastic innovation by means ofa royalty.2. This paper studies the licensing of a cost-reducing innovation by means of threepossible allocation mechanism: fixed-fee, royalty, and auction. Optimal licensing strategy ofthe research unit, consumer surplus, and social welfare are examined. On the viewpoint ofresearch unit and social welfare, royalty licensing strategy is optimal for small innovation size,and auction licensing strategy is optimal for large innovation size. Moreover, optimallicensing rate of the research unit without technology spillover and with spillover are analyzed.It is found that the region of optimal licensing rate of research unit in the context oftechnology spillover is shorter than no spillover.3. Combining the revenue effect and rent dissipation effect of licensing, licensingincentives and symmetric licensing equilibrium of a monopolist technology owner areexamined in a differentiated Cournot model. Stable symmetric licensing equilibrium of theonly innovator is found to decrease in the magnitude of the innovation and the substitutioncoefficient of product, but increase in the number of incumbent competitors. It is also foundthat the only innovator has incentives to license all of its rivals by means of a royalty with theoptimal royalty rate equals to the innovation size.4. The present paper examined how competition among technology holders in bothproduct market and technology market affects their incentives to issue fixed-fee licenses topotential entrants. Two separate cases in a differentiated Cournot structure, a monopolistpatentee and multiple symmetric patentees, are considered on the basis of whether or not thepatentee faces competition pressure of technology market. And the determination of theoptimal license number of patentee(s) is solved explicitly. The results show that no licensingis the preferred option of each of multiple symmetric patentees. However, for a monopolistpatentee, its licensing incentive is increasing in the number of incumbent competitors, thesubstitution coefficient of product and the degree of knowledge appropriability, but isdecreasing in licensing transaction costs.