Licensing to Market with Logit Demand Functions

This paper studies the licensing of a brand innovation to a monopoly in an uncovered market characterized by a logit demand framework. The innovator is an outsider to the market and sells the license via fixed-fee, royalty or their combinations. It is shown that the license occurs irrespective of whether the utility of the new brand is improved or not, and that the optimal licensing policy for the innovator is fixed-fee only. Ultimately, the monopoly produces both the old and the new brand products, even in the case of utility-improving brand innovation. In addition, the incentive for the innovator was examined.