Licensing Strategy for a Stochastic R&D firm in a Differentiated Cournot Duopoly Model

Xianpei Hong, Qiang Lu, Lei Xu, Kannan Govindan, Ieva Meidute

Abstract


This paper investigates an innovating firm’s licensing strategy in a differentiated Cournot duopoly model when the firm is an insider and the R&D outcome is stochastic. We develop a duopoly game model in which the innovating firm has three options for licensing its innovation: fixed-fee licensing, royalty licensing and two-part tariff licensing. We consider three stages in the model: the R&D, licensing and output stages. We find that product differentiation and technology spillover play significant roles in the innovating firm’s choice between fixed-fee and royalty licensing. In addition, regardless of the degree of product differentiation, we find that (1) two-part tariff licensing is superior to both fixed-fee and royalty licensing when technology spillover is low and that (2) two-part tariff licensing is equivalent to royalty licensing when technology spillover is high.

DOI: http://dx.doi.org/10.5755/j01.ee.26.5.12313


Keywords


Technology licensing, R&D outcome, Licensing options, Technology spillover, Differentiated Cournot duopoly, Game theory

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Print ISSN: 1392-2785
Online ISSN: 2029-5839