Optimal licensing of uncertain patents in a differentiated Stackelberg duopolistic competition market

Huaige Zhang, Xuejun Wang, Ping Qing and Xianpei Hong

International Review of Economics & Finance, 2016, vol. 45, issue C, 215-229

Abstract: This study investigates the strategy implications of patent licensing between two firms in a differentiated Stackelberg framework, when the innovator faces an uncertain research and development (R&D) outcome. We establish a three-stage duopoly game (with an R&D stage, a licensing stage and an output stage), in order to analyze the effects of product differentiation and technology spillover on the optimal licensing strategy for a stochastic R&D firm. Our results demonstrate that, in cases where the R&D outcome is uncertain, (i) whether the innovator chooses fixed-fee licensing or royalty licensing depends on the degree of product differentiation and technology spillover; (ii) when the technology spillover is lower than a critical value, regardless of the degree of product differentiation, two-part tariff licensing is superior to fixed-fee licensing and royalty licensing, and (iii) the optimal royalty rate is dependent upon the technology spillover, with the value possibly being higher than the cost reduction.

Keywords: Patent licensing; R&D outcome; Technology spillover; Stackelberg model (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:45:y:2016:i:c:p:215-229

DOI: 10.1016/j.iref.2016.06.003

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