Licensing pricing discrimination and allocative efficiency about the Chinese dual-use defense technology under a military shareholding contract

Abstract

Transferring the using right of the dual-use defense technology in China is that the military licensors license the dual-use defense technology to two or more civilian manufacturers which are usually the military licensor's shareholding manufacturers. We study a military research institute's discriminatory licensing pricing strategies when the civilian licensees are asymmetric with different allocative efficiencies under a military shareholding contract. We show that, (ⅰ) the discriminatory licensing pricing strategy can increase the overall profits of the military research institute and the civilian manufacturers by realizing the civilian-military integration; (ⅱ) the military licensor will charge a higher royalty to the efficient civilian manufacturer when the military licensor holds a significantly higher shareholding equity to the inefficient manufacturer than the efficient civilian manufacturer, or when the military licensor holds a slightly higher shareholding equity to the inefficient manufacturer than the efficient civilian manufacturer and the market competition is fierce, which decreases the social allocative efficiency, otherwise, the military licensor will charge a lower royalty to the efficient civilian manufacturer, which improves the social allocative efficiency. Moreover, we show that the military licensor's shareholding equities have a more significant impact on the discriminatory licensing pricing strategy and the social allocative efficiency than the market competition intensity; (ⅲ) the military shareholding contract provides a rational explanation for the sustainability of the discriminatory licensing pricing contract, and the military research institute can reduce the licensing pricing gap by adjusting the shareholding equity ratio to the efficient manufacturer to avoid violating the 'Anti-monopoly' Laws.