publication . Article . 2012

The Impact of Royalty Contract Revision in a Multistage Strategic R&D Alliance

Wenqiang Xiao; Yi Xu;
Open Access
  • Published: 01 Jan 2012 Journal: Management Science, volume 58, pages 2,251-2,271 (issn: 0025-1909, eissn: 1526-5501, Copyright policy)
  • Publisher: Institute for Operations Research and the Management Sciences (INFORMS)
Abstract
This paper investigates the impact of royalty revision on incentives and profits in a two-stage (research and development (R&D) stage and marketing stage) alliance with a marketer and an innovator. The marketer offers royalty contracts to the innovator. We find that the potential for royalty revision leads to more severe distortions in the optimal initial royalty contracts offered by the marketer. We show that if the innovator plays a significant role in the marketing stage, the marketer should offer a low royalty rate initially and then revise the royalty rate up later. Otherwise, she should do the opposite. We identify two major effects of royalty revision. Fi...
Subjects
free text keywords: research and development, royalty contract, renegotiation, incentives, R&D alliance, Management Science and Operations Research, Strategy and Management
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