Optimal R&D subsidies under technology licensing

Abstract

An optimization model for government subsidies in a R&D race considering ex ante licensing as well as ex post licensing is proposed in this paper, under the assumption of a Bertrand duopoly with a linear demand function, and that the time required for a successful innovation is subject to Poisson distribution. The general market equilibriums are searched for by backward induction, followed with ex ante and ex post licensing equilibriums. Combined with the R&D race equilibrium analysis, the equilibrium net social welfare is optimized eventually. A numerical example is followed with the analysis about the effect of product differentiation on equilibrium consumer surplus and net social welfare. The model is proposed to be a theoretical reference for technology management strategy in reality. © 2012 Springer-Verlag.