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Believe It or Not: Strategic Licensing Makes R&D Alliance Profitable

Author

Listed:
  • Banerjee Tannista

    (Department of Economics, Auburn University, 140 Miller Hall, Auburn, AL 36849, USA)

  • Sengupta Aditi

    (Department of Economics, Auburn University, 109C Miller HallAuburn, USA)

Abstract

We consider a market where firms (that compete in the product market) invest in the research and development (R&D) activities with no guaranteed success and engage in a patent race for intellectual property rights. We analyze the effects of a strategic (ex ante) licensing contract on the equilibrium investment behavior of competing firms that form a research and development (R&D) alliance to win a patent race. We show that the R&D alliance members that sign strategic licensing contract invest more in the R&D and earn higher expected profits compared to the firms in an R&D cartel and R&D joint venture cartel without any strategic licensing as well as the firms that aggressively compete in the innovation market to win the patent race.

Suggested Citation

  • Banerjee Tannista & Sengupta Aditi, 2019. "Believe It or Not: Strategic Licensing Makes R&D Alliance Profitable," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(4), pages 1-6, October.
    • Handle: RePEc:bpj:bejeap:v:19:y:2019:i:4:p:6:n:7
    DOI: 10.1515/bejeap-2018-0358
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    2. Erkal, Nisvan & Piccinin, Daniel, 2010. "Cooperative R&D under uncertainty with free entry," International Journal of Industrial Organization, Elsevier, vol. 28(1), pages 74-85, January.
    3. Tannista Banerjee & Ralph Siebert, 2017. "The Impact of R&D Cooperations and Mergers in Pharmaceuticals on Research Activities and Drugs Offered on the Market," Southern Economic Journal, John Wiley & Sons, vol. 84(1), pages 202-228, July.
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    More about this item

    Keywords

    ex ante licensing; R&D alliance; R&D cartel; uncertain R&D;
    All these keywords.

    JEL classification:

    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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