Licensing by Fixed-Fee and Two-Part Tariff in a Differentiated Stackelberg Model when the Follower is the Innovator

In the present paper we consider a differentiated-good Stackelberg model, when the follower firm engages in an R&D process that gives an endogenous cost-reducing innovation. The aim is two-fold: the first is to study the case when there is a technology transfer between the innovator and the non-innovator firm based on a fixed-fee licensing contract, and the second is to study the case when there is a technology transfer between the innovator and the non-innovator firm based on a two-part tariff licensing contract. The main result of the paper is that the degree of the differentiation of the goods is the key factor in the decisions of the innovator firm, influencing its licensing strategy. In particular, we find that for the innovator firm is better a fixed-fee or a two-part tariff licensing contract than no-licensing, even if the innovation is drastic. In the case of a fixed-fee licensing, the main variables of this duopoly model increase with the differentiation of the goods all the time. It turns out that in the case of a two-part tariff licensing, this conclusion does not fit all the time. The findings of this paper extend the literature on contract auctions when the innovating firm has different options for licensing its innovation. (C)2022 L&H Scientific Publishing, LLC. All rights reserved.