Journal
ECONOMIC MODELLING
Volume 68, Issue -, Pages 117-126Publisher
ELSEVIER
DOI: 10.1016/j.econmod.2017.06.013
Keywords
Technology licensing; Bertrand competition; Uncertain R &D outcomes; Technology spillover
Categories
Funding
- Fundamental Research Funds for the Central Universities [2016XS78]
- Research Base Project of Beijing Social Science Foundation [16JDGLB023]
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This paper studies the licensing behavior in a differentiated Bertrand duopoly market in which the innovative firm engages in a cost-reducing R & D with uncertain outcomes. We also assume that there will be technology spillover if R & D ends in success. The results show that, in the case of a non-drastic innovation with uncertain outcomes, (i) the optimal licensing contract in terms of fixed-fee and royalty licensing is fixed-fee licensing when product substitution and technology spillover are both small, while it is royalty licensing otherwise; and (ii) if two-part tariff licensing is available, it is superior (equivalent) to royalty licensing when technology spillover is small (large), but always better than fixed-fee licensing for any degree of product substitution and technology spillover. Moreover, the results also indicate that the probability of R & D success in each licensing method plays an important role in determining the innovative firm's optimal licensing strategy.
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