Consumer Surplus, Choice of Technology Licensing and Bilateral Government R&D Subsidies

Involving strategic behavior of enterprises' technology licensing, this paper releases “the third market model” assumption, and establishes a game model of four-stage duopolistic R&D rivalry by means of backward induction used usually in the uncooperative game theory, to examine optimal R&D policies considered consumer surplus by respective governments when competitor has incomplete bargaining power. Results and conclusions show that: Firstly, consideration of consumer surplus by country affects subsidy rate for enterprise's R&D, and thus R&D behavior of competitor. Secondly, strategic behavior of enterprises' technology licensing has impacts on government R&D policies only when technology leader makes minor non-drastic innovation. Finally, bilateral government optimal R&D policies are different in different strategies of technology licensing. For instance, concerning the licensor, its R&D subsidy rate by its government is higher in fixed-fee licensing than output-royalty licensing. Meanwhile, expectation of bargaining power by both licensor and licensee affects respective government R&D polices in a certain technology licensing. Such as output-royalty licensing, in which R&D subsidy rate by its government is higher with its bargaining power concerning the licensee