Coordination of Advertising Strategies in a Fashion Licensing Contract

The aim of this paper is to characterize cooperative and noncooperative advertising strategies of a licensor and licensee involved in a licensing contract in the fashion business. Licensing is the process of leasing a legally protected entity (brand, name, logo, etc.) in conjunction with a product or product line. It is based on a contractual agreement between two business entities: the owner of the property, called licensor; and the renter of the rights, called licensee. Licensing is seen as a win-win strategy, in which the two partners can achieve their objectives (e.g., expanding the brand, its market reach, etc.). We show that, if the licensor, who acts as the leader, uses an incentive strategy that depends on the licensee advertising, then it can reach the jointly optimal solution in a decentralized way. This research project was initiated following a discussion by the first author with an Italian designer involved in licensing in the fashion business. Research supported by NSERC, Canada.