Group for Research in Decision Analysis

Differential game with a non differentiable point for a licensing contract in a complementary business

Alessandra Buratto University of Padova, Italy

The "Royalty" clause in a licensing contract requires that the licensee pays a financial reward for having the rights for a certain property and a guaranteed minimum royalty has to be paid even in the face of no revenues.

We formulate and solve a differential game, à la Stackelberg, where in the objective functional appears a non differentiable term, which is the max between the Guarantee and the percentage of the sales.