Optimal Licensing Schemes in a Heterogeneous Cournot Duopoly

This paper develops an economic model to compare the profitability of three schemes for the licensing of a quality-improving technology:fixed fee,royalty and fixed fee plus royalty licensing.It is assumed that the potential licensor and licensee compete in a Cournot duopoly with a linear demand function,zero cost of technology transaction as well as a non-drastic innovation.The analysis is followed by the discussion of consume surplus and social welfare regarding the three different licensing mode,and its trend against the magnitude of the quality-improving innovation.The results show that from the viewpoint of the licensor,royalty licensing is always superior,and licensing occurs only in the case of innovation of small magnitude under the constraint of fixed fee licensing.However,the consume surplus and social welfare could be maximum once the fixed fee licensing occurs.A numerical example ends this paper with a result that regarding the consume surplus and social welfare,with the increasing of the magnitude of the innovation,the fixed fee licensing is more superior to royalty licensing as well as non-licensing.