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LICENSING BY OUTSIDE INNOVATOR IN HOTELLING MODEL REVISITED

YUANZHU LU

International School of Business and Finance, Sun Yat-Sen University, Guangzhou, Guangdong, P. R. China

E-mail Address: luyuanzhu@mail.sysu.edu.cn

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and

FULAN WU

School of Economics, Zhejiang University Hangzhou, Zhejiang, P. R. China

E-mail Address: wufulan@zju.edu.cn

Corresponding author.

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https://doi.org/10.1142/S0217590821500417Cited by:0 (Source: Crossref)

Abstract

This paper extends Banerjee and Poddar [Banerjee, S and S Poddar (2019). ‘To sell or not to sell’: Licensing versus selling by an outside innovator. Economic Modelling, 76, 293–304] by lifting the cap on per unit royalty rates in the cases of royalty licensing and two-part tariff licensing. We reconsider the optimal technology licensing contract by an outside innovator facing two heterogeneous licensees in a standard Hotelling framework. Our findings show that the optimal licensing policy could be fixed fee to the efficient firm, or two-part tariff to both firms (pure royalty to both firms), or two-part tariff to the efficient firm, depending upon the cost differentials between the firms and the size of innovation.

Keywords:

JEL: D43, D45, L13

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