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Technology Licensing to a Rival

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Author Info
Caroline Boivin () (University of Sherbrooke)
Corinne Langinier () (Iowa State University)

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Abstract

Licensing a new technology implies introducing competition into the market. This has a negative effect on the profit of the incumbent if the demand remains unchanged. However, because of the novel content of an innovation, consumers may have different perceptions of the value of a good depending on the market structure. Thus, the introduction of a competitor into the market may enhance demand, and consequently have a positive effect on the profit of the incumbent. In a simple setting, we show that the incumbent may decide to license her technology even in the absence of a royalty when the positive effect outweighs the negative one.

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File URL: http://economicsbulletin.vanderbilt.edu/2005/volume12/EB-05L10021A.pdf
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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 12 (2005)
Issue (Month): 15 ()
Pages: 1-8
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Handle: RePEc:ebl:ecbull:v:12:y:2005:i:15:p:1-8

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Related research
Keywords: innovation; licensing;

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Find related papers by JEL classification:
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
D2 - Microeconomics - - Production and Organizations

References listed on IDEAS
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  1. Bousquet, Alain & Cremer, Helmuth & Ivaldi, Marc & Wolkowicz, Michel, 1998. "Risk sharing in licensing," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 535-554, September. [Downloadable!] (restricted)
  2. Katharine E. Rockett, 1990. "Choosing the Competition and Patent Licensing," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 161-171, Spring. [Downloadable!] (restricted)
  3. Andrea Shepard, 1987. "Licensing to Enhance Demand for New Technologies," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 360-368, Autumn. [Downloadable!] (restricted)
  4. Farrell, Joseph & Gallini, Nancy T, 1988. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 673-94, November. [Downloadable!] (restricted)
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