Selecting a partner for license partnership: An economical & mathematical model

The present paper describes a mathematical model of license partner selection for the situation when the licensee is authorized to produce and sell the product under licensor’s brand. The model takes into account the risk of licensee’s inability to organize production and sales of the licensed product as well as the licensee’s investments into organization of production of this product. The hypothesis is formulated that this risk and these expenses depend on the difference of the price between the licensee’s own product and the licensed one. Models of dependence of the expected income of licensor and licensee from the difference of prices of the licensee’s own product and the licensed one. It is demonstrated that contrarily to the traditional approach neither party should be interested in maximization of difference between the price of the licensed and non-licensed product because it increases risks of licensee’s inability to organize production and sales, as well as investments into organization of production and sales of the licensed product and reduces the expected income of licensor and licensee. Both parties should select a partner with close marketing and production competencies. It is demonstrated that the nature of licensing partnership consists in effective common use of parties’ production and intellectual assets, but not in technology transfer.