Technology licensing contracts with network effects

Dan Zhao, Hongmin Chen, Xianpei Hong and Jingfang Liu

International Journal of Production Economics, 2014, vol. 158, issue C, 136-144

Abstract: We study the optimal technology licensing contracts with network effects and investigate the welfare implications when the product innovator is an insider that acts as a Stackelberg leader. We show that (i) the market is fully covered when relatively small network intensity matches quality differentiations that are sufficiently large; (ii) with regard to profit maximization, the optimal licensing strategy varies from one of royalty licensing to two-part tariff licensing as network effects increase (not including fixed-fee licensing); (iii) consumer surplus is optimal under non-licensing conditions in comparison to other licensing strategies, due to the covered market; (iv) depending on network effects, the preferred strategies to achieve social welfare maximization change from no-licensing or fixed-fee licensing to two-part tariff licensing, and royalty licensing is not preferred in this instance; (v) conflict does not always or necessarily occur between the goals of enterprise profit maximization and social welfare optimization. Two-part tariff licensing is preferred both by the licensor and by society when the network effect is large.

Keywords: Network effects; Vertical product innovation; Technology licensing; Stackelberg competition; Covered market; Social welfare (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:158:y:2014:i:c:p:136-144

DOI: 10.1016/j.ijpe.2014.07.023

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