Asymmetric Information Under The Patent License And Innovation

Patent licensing has become a common phenomenon of modern economy. This article constructs a theoretical model to analyze the relationship between the independent innovation abilities of domestic enterprises and the patent license fees in patent licensing negotiations. Firstly, the article analyzes the relationship between the independent innovation abilities of domestic enterprises as the licensees and the patent license fees under the conditions of complete information; Secondly, the article discusses the relationship between the independent innovation abilities of domestic enterprises and the patent license fees under the conditions of asymmetric information, and basis on this, this article also analyzes the impacts of the government policies.We found that under the condition of complete information, as patent holders, foreign enterprises always select the patent licensing strategy as long as the domestic enterprises have cost advantage, which lead no innovation on the equilibrium path. However, under conditions of asymmetric information, as patent holders, foreign enterprises can not only achieve pooling equilibrium by lower royalty, but also achieve separating equilibrium by higher royalty. Therefore, there exists independent innovation on the equilibrium path.We also found that there exists a threshold value under the conditions of both symmetric and asymmetric information. If the licensee's innovation ability is higher than the threshold value, then the higher the licensee's innovation ability is, the lower the running royalty is. If the licensee's innovation ability is lower than the threshold value, then it has no effect on the running royalty. We further find that under the condition of asymmetric information, the government subsidies can improve the negotiation ability of domestic firms.