Monday, November 20, 2017
Cuihong Fan (Shanghai University of Finance and Economics) ; Byoung Heon Jun (Department of Economics, Korea University, Seoul, Republic of Korea) ; Elmar G. Wolfstetter (Department of Economics, Korea University, Seoul, Republic of Korea) offer Optimal Licensing of Technology in the Face of (Asymmetric) Competition.
ABSTRACT: We reconsider the optimal licensing of technology by an incumbent firm in the presence of multiple potential licensees. In a first step we show that competition among potential licensees has a drastic effect on optimal two-part tariff contracts. We then introduce more general mechanisms and design a dynamic mechanism that extracts the maximum industry profit while reducing the potential licensees' payoff to the minimum level that they can assure themselves. That mechanism can be viewed as a generalized "chutzpah" mechanism, generalized because it employs royalties to maximize the industry profit. It awards licenses to all firms and prescribes maximum permitted royalty rates plus positive fixed fees.