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Licensing of a Drastic Innovation with Product Differentiation

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  • Toker Doganoglu
  • Firat Inceoglu

Abstract

type="main"> We analyze the licensing of a drastic innovation when products are differentiated due to consumer and/or product heterogeneity. We show that an industry insider prefers to divest its production arm and license the new technology as an industry outsider, in which case it can replicate multiproduct monopoly profit. We derive the optimal contracts and the optimal number of licenses by assuming a logit demand system. Optimal number of licenses, quite strikingly, increases when the technology has a higher relative value than a commercialized alternative. This result stands in sharp contrast with the literature on the licensing of a homogenous good.

Suggested Citation

  • Toker Doganoglu & Firat Inceoglu, 2014. "Licensing of a Drastic Innovation with Product Differentiation," Manchester School, University of Manchester, vol. 82(3), pages 296-321, June.
    • Handle: RePEc:bla:manchs:v:82:y:2014:i:3:p:296-321
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    File URL: http://hdl.handle.net/10.1111/manc.12025
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    References listed on IDEAS

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    Cited by:

    1. Antelo, Manel & Antonio, Sampayo, 2017. "Licensing contracts and the number of licenses under screening," MPRA Paper 77252, University Library of Munich, Germany.

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