Technology Licensing With Strategic Corporate Social Responsibility in a Vertically Differentiated Duopoly

Abstract

In this paper, we study the impact of strategic corporate social responsibility (CSR) activities on the optimal licensing strategy for cost-reducing technology in a vertically differentiated duopoly. We compare three types of licensing strategies—fixed fee, royalty, and two-part tariff—under three CSR strategy structures: ST model (only firm 1 adopts a CSR strategy), TS model (only firm 2 adopts a CSR strategy), and SS model (both firms adopt CSR strategies). The results show that the licensor prefers fixed-fee licensing when it adopts a CSR strategy (i.e., ST and SS) but opts for two-part tariff licensing when it does not (i.e., TS). We also find that the optimal licensing contract leads to higher social welfare under the CSR compliance strategy than under the mixed CSR strategy. Finally, we show that firms endogenously choose the CSR compliance strategy.