Stable licensing schemes in technology transfer

Abstract

By considering combinations of a lump-sum fee and a per-unit royalty as licensing schemes in the transfer of new technology through licensing from a technology holder to oligopolistic firms, we investigate stable licensing schemes that are realized as bargaining outcomes. The licensing schemes agreeable to both the technology holder and licensees are necessarily rejection-proof; that is, no subgroup of licensees has an incentive to reject the licensing schemes. We newly define the rejection-proof core for each group of licensees as the set of rejection-proof licensing schemes for its group that are not dominated by any other rejection-proof licensing schemes for any licensees' group. Our principal findings are as follows: For the group of licensees that maximizes the sum of the technology holder's (gross) profit and licensees' total surplus, the rejection-proof core is always nonempty. Furthermore, from the perspective of profit maximization, the nonempty rejection-proof cores suggest that the technology holder should license the new technology to such a group.