Appropriable Quasi Rent And Regulation Of The Contract Dispute

The business model of trademark license is more and more used as market economy gets increasingly prosperous. However, the specific business model is usually unable to achieve win-win for a long term, which is because hold-up will occur once the licensee or the licensor makes specific investment. During the lease term of GPC(Guangzhou Pharmaceutical Company Limited) and JDB(Jiaduobao Group), the increase of appropriable quasi rent leads to post-contractual opportunistic behavior, which evolves into break-up eventually. The investigation of this case and its result has an important theoretical and practical value.By using an analytical framework of new institutional economics, this paper elaborates on the hold-up and the regulation of it in the "Wang Lao Ji" trademark dispute. We define the "Wang Lao Ji" trademark dispute as a contract dispute caused by hold-up behavior, demonstrate that GPC has the incentive to conduct hold-up, and discuss the measures to overcome hold-up. The main content of this paper is arranged as follows:The first sector is the introduction. It mainly introduces the background of this paper. It also represents the main ideas of incomplete contract theory and modern enterprise theory, especially the research of incomplete contract and its regulation in transaction cost theory and property theory, and concludes the factors that cause the incompleteness of contract briefly.The second sector firstly describes the reality of the situation, and then demonstrates the incompleteness of the contract in this case combined with "Wang Lao Ji" trademark license and supplementary agreements from different angles, which are trademark licensing system, types of trademark license, and the expiration of "Wang Lao Ji" trademark license.The third part is the body part of this paper. As contracts are incomplete, hold-up will occur once parties make specific investment. JDB has made a large amount of specific investment during the decades when it had the right to use the trademark, especially asset specific investment and relationship specific investment. This has not only brought big profits for JDB, but also increased the appropriable quasi rent. Nevertheless, it is not convincing to assert that hold-up occurs, because it is hard for a third party to find out the parties’ intentions. The third sector makes analyses of GPC’s behavior and motivation in two ways. On the one hand, it can be proved that GPC withheld quasi rent ex post by advertising, marketing and selling green boxed herbal tea as a free rider. On the other hand, we build a static game model with perfect information to prove that GPC has the motivation to terminate the cooperation with JDB.The fourth sector studies the regulation of a contract dispute. Firstly, it describes reputation mechanism, guarantee scheme, benefit sharing mechanism and some other concrete plans, which is more based on market organization and firm organization represented by Coase and Klein. Secondly, it verifies that hold-up problem can be solved in market at lower costs as long as property right is clear, based on JDB’s actual operation and actual results.The fifth sector is the conclusion and the inspiration. It emphasizes that the demarcation and allocation of property right is crucial to the economic efficiency when disputes are resolved in a court.