Licensing under Bargaining

To relax the assumption that licensees have no bargaining power, which is prevalent in the licensing literature, the Rubinstein bargaining model is integrated with a duopoly licensing model in this paper. The licensor always licenses the best technology regardless of whether the technology advances are negotiated or solely determined by the licensor. Further, royalties prove to be the only payment method. Otherwise, the choice of the payment methods depends on the licensor’s market entry decision and firms ’ bargaining powers in some cases. Finally this paper presents a simple framework for analyzing the effect of the licensee bargaining power on licensing behavior