Technology Transfer in Oligopoly in Presence of Fixed-Cost in Production

This paper discusses different possibilities of licensing between Cournot duopolists with a technology characterized by constant marginal cost and positive fixed-cost. It is shown that optimal fixed-fee and per-unit royalty can be negative. This implies that the licensor can subsidize the licensee in the equilibrium to license its technology even if they compete in the output market in the post-licensing stage. Moreover superiority of up-front fee as an advance on royalties is also identified. The firm having lower marginal cost and higher fixed cost prefers royalty licensing than licensing by fixed-fee, while the other firm having lower fixed cost and higher marginal cost sometimes prefers fixed-fee licensing. Interestingly, a firm that earns less profit in the no-licensing stage may become the licensor of its technology. © 2015, Springer Science+Business Media New York.