Technology Licensing Strategy for Network Product in a Service Industry

Abstract EN

Technology licensing has gained significant attention in literature and practice as a rapid and effective way to improve firm’s capability of technology innovation.

In this paper, we investigate a duopolistic service provider competition market, where service providers develop and sell a kind of network product.

In this setting, we analyze the innovating service provider’s four licensing strategies: no licensing, fixed fee licensing, royalty licensing, and two-part tariff licensing.

The literature suggests that when the network products can be completely substituted, two-part tariff licensing is the optimal strategy of the innovating service provider.

We find that when the network products cannot be completely substituted, two-part tariff licensing is not always optimal.

The degree of the product differentiation, the intensity of the network effects, and the R&D cost of the potential licensee play a key role in determining the innovating service provider’s optimal licensing strategies.