The Impact Of Different Technology Licensing Methods On Firm’s R&D Incentive And Social Welfare Under Differentiated Competition

With the development of the technological economy and economic globalization,technology innovation and licensing have become an important way for companies to improve and consolidate their competitive advantages.We consider a technology owner who decides on the size of the cost-reducing innovation endogenously in a differentiated duopoly.Using Cournot model,we analysis the impact of technology licensing by firm’s R&D incentive and social welfare,the optimal licensing for the technology owner and the optimal licensing for the social welfare,and the influence of government subsidy policy on them.The main results of this paper are as follows.First,analysis of technology licensing and firm’s R&D incentive under vertical product differentiation.Using a vertically differentiated Cournot duopoly model,we study the impact of three different technology licensing methods on firm’s R&D incentive and social welfare.We show that,in the presence of the fixed-fee licensing,the firm’s R&D incentive depends on the degree of product differentiation and the degree of technological innovation,and the social welfare increases.In the presence of the per-unit royalty licensing,the firm’s R&D incentive definitely decreases,and the social welfare depends on the degree of product differentiation and the degree of technological innovation.In the presence of the two-part tariff licensing,the firm’s R&D incentive and the social welfare depend on the degree of product differentiation and the degree of technological innovation.Second,analysis of technology licensing and firm’s R&D incentive under horizontal product differentiation.Using a horizontally differentiated Cournot duopoly model,we study the impact of three different technology licensing methods on firm’s R&D incentive and social welfare.We show that,in the presence of the fixed-fee licensing,the firm’s R&D incentive depends on the degree of product differentiation,and the social welfare increases.In the presence of the per-unit royalty licensing,the firm’s R&D incentive and the social welfare depend on the degree of product differentiation.In the presence of the two-part tariff licensing,the firm’s R&D incentive and the social welfare depend on the degree of product differentiation.Third,regardless of whether the two companies compete horizontally or vertically,the optimal decision of the technology owner is to use the two-part tariff licensing.From the perspective of maximizing social welfare,the fixed-fee licensing is the optimal decision.However,under the condition of vertical differentiated competition,technology licensing under the two-part tariff licensing may harm the level of social welfare,while under the condition of horizontally differentiated competition,the two-part tariff licensing will definitely improve the level of social welfare.Forth,when firms conduct vertically differentiated competition,from the perspective of maximizing social welfare,whether the government provides government subsidies depends on the degree of product differentiation and the degree of technological innovation.When firms conduct horizontally differentiated competition,from the perspective of maximizing social welfare,the government will subsidize the technology owner to improve the social welfare.