Optimal Technology Licensing Strategy for Manufacturer Cooperation and Competition

Technology licensing serves as a crucial strategy for innovators to recoup R&D costs while simultaneously competing in the end market. This, however, fosters a complex coopetition relationship with downstream manufacturers, complicating strategic choices. To explore the optimal technology licensing path within this context, a supply chain model is developed, featuring one technology innovator and two vertically differentiated manufacturers. The equilibrium outcomes under three scenarios—no licensing, single licensing, and dual licensing—are comparatively analyzed to delineate the applicable boundaries for the optimal strategy. The findings reveal that no single licensing strategy holds a constant advantage; both single and dual licensing can be optimal depending on specific conditions, with product substitutability acting as the key determinant. As product substitutability increases, the advantageous region for dual licensing contracts, while a no-licensing strategy gradually becomes dominant. Notably, a disappearance threshold is identified for the strategy of licensing exclusively to the low-quality manufacturer. Furthermore, a counter-intuitive phenomenon is uncovered: in a single-licensing scenario, the unlicensed manufacturer, despite its technological disadvantage, may see its profits rise due to shifts in the market's competitive structure. From a coopetition perspective, the underlying mechanism of technology licensing is unveiled, providing a theoretical basis and managerial insights for firms on technology diffusion, competitive strategy, and market positioning in differentiated markets.