title: The optimal licensing contract in a differentiated Stackelberg model.
abstract: This paper extends the work of Wang (2002) by considering a differentiated Stackelberg model, when the leader firm is an inside innovator and licenses its new technology by three options, that is, fixed-fee licensing, royalty licensing, and two-part tariff licensing. The main contributions and conclusions of this paper are threefold. First of all, this paper derives a very different result from Wang (2002). We show that, with a nondrastic innovation, royalty licensing is always better than fixed-fee licensing for the innovator; with a drastic innovation, royalty licensing is superior to fixed-fee licensing for small values of substitution coefficient d; however when d becomes closer to 1, neither fee nor royalty licensing will occur. Secondly, this paper shows that the innovator is always better off in case of two-part tariff licensing than fixed-fee licensing no matter what the innovation size is. Thirdly, the innovator always prefers to license its nondrastic innovation by means of a two-part tariff instead of licensing by means of a royalty; however, with a drastic innovation, the optimal licensing strategy can be either a two-part tariff or a royalty, depending upon the differentiation of the goods.
authors.affiliation: School of Economics and Management, Hubei University of Automotive Technology, Shiyan 442002, China ; School of Management, Huazhong University of Science & Technology, Wuhan 430074, China.
authors.forename: Xianpei
authors.initials: X
authors.lastname: Hong
authors.affiliation: School of Economics and Management, Hubei University of Automotive Technology, Shiyan 442002, China.
authors.forename: Lijun
authors.initials: L
authors.lastname: Yang
authors.affiliation: School of Economics and Management, Hubei University of Automotive Technology, Shiyan 442002, China.
authors.forename: Huaige
authors.initials: H
authors.lastname: Zhang
authors.affiliation: Antai College of Economics & Management, Shanghai Jiao Tong University, Shanghai 200052, China.
authors.forename: Dan
authors.initials: D
authors.lastname: Zhao
mesh_terms: D032982:Contracts; D062069:Inventions / Q000331:legislation & jurisprudence*; D008004:Licensure; D017059:Models, Econometric; D008962:Models, Theoretical