| Summary: | The owner of a well known fashion brand grants a manufacturer the rights to
produce and sell a second-line brand against a percentage of the sales called
royalty. To this end, the brand owner and the manufacturer sign a licensing
contract which assigns the owner, who has already determined his advertising
campaign, the right of determining the royalty factor. The manufacturer will
plan her advertising campaign for the licenced product in order to maximize
her profit. The brand owner’s objective is twofold: on the one hand, he wants
to maximize the profit coming from the contract, on the other hand, he wants
to improve the value of the brand at the end of a given planning period. We
model this interaction between the two agents using a Stackelberg game, where
the brand owner is the leader and the manufacturer is the follower. We
characterise the royalty percentage and the licensee’s advertising effort
which constitute the unique Stackelberg equilibrium of the game.
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