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Technology licensing in a vertically differentiated duopoly

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Author Info

  • Li, Changying
  • Song, Juan

Abstract

In this paper, we develop a vertically differentiated duopoly model where a high-quality producer competes against a low-quality producer, a la Cournot competition. The high-quality firm has both a new technology and an obsolescent technology. After first deciding whether to license, the firm then chooses which of the two technologies to license. We show that, irrespective of the licensing contract, licensing the new technology is always superior to licensing the obsolescent technology. This finding poses a sharp contrast to the conventional wisdom.

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Bibliographic Info

Article provided by Elsevier in its journal Japan and the World Economy.

Volume (Year): 21 (2009)
Issue (Month): 2 (March)
Pages: 183-190

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Handle: RePEc:eee:japwor:v:21:y:2009:i:2:p:183-190

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Web page: http://www.elsevier.com/locate/inca/505557

Related research

Keywords: Licensing New technology Obsolescent technology;

References

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  1. Li, Changying & Geng, Xiaoyan, 2008. "Licensing to a durable-good monopoly," Economic Modelling, Elsevier, vol. 25(5), pages 876-884, September.
  2. Arijit Mukherjee, 2002. "Innovation, Licensing and Welfare," Keele Economics Research Papers KERP 2002/03, Centre for Economic Research, Keele University.
  3. Arijit Mukherjee & Soma Mukherjee, 2005. "Foreign Competition With Licensing," Manchester School, University of Manchester, vol. 73(6), pages 653-663, December.
  4. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July.
  5. Nisvan Erkal, 2004. "Optimal Licensing Policy in Differentiated Industries," Department of Economics - Working Papers Series 894, The University of Melbourne.
  6. Sougata Poddar & Uday Bhanu Sinha, 2002. "On Patent Licensing in Spatial Competition," Departmental Working Papers wp0212, National University of Singapore, Department of Economics.
  7. Chun-Hsiung Liao & Debapriya Sen, 2005. "Subsidy In Licensing: Optimality And Welfare Implications," Manchester School, University of Manchester, vol. 73(3), pages 281-299, 06.
  8. Fauli-Oller, Ramon & Sandonis, Joel, 2002. "Welfare reducing licensing," Games and Economic Behavior, Elsevier, vol. 41(2), pages 192-205, November.
  9. Wang, X Henry & Yang, Bill Z, 1999. "On Licensing under Bertrand Competition," Australian Economic Papers, Wiley Blackwell, vol. 38(2), pages 106-19, June.
  10. Tarun Kabiraj, 2004. "Patent Licensing in a Leadership Structure," Manchester School, University of Manchester, vol. 72(2), pages 188-205, 03.
  11. De Fraja, Giovanni, 1996. "Product line competition in vertically differentiated markets," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 389-414, May.
  12. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-31, June.
  13. Avenel, E. & Caprice, S., 2006. "Upstream market power and product line differentiation in retailing," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 319-334, March.
  14. Tarun Kabiraj, 2005. "Technology Transfer In A Stackelberg Structure: Licensing Contracts And Welfare," Manchester School, University of Manchester, vol. 73(1), pages 1-28, 01.
  15. Mukherjee, Arijit & Pennings, Enrico, 2006. "Tariffs, licensing and market structure," European Economic Review, Elsevier, vol. 50(7), pages 1699-1707, October.
  16. Rockett, Katharine, 1990. "The quality of licensed technology," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 559-574, December.
  17. Kamien, Morton I & Tauman, Yair, 1986. "Fees versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 471-91, August.
  18. Kamien, Morton I & Tauman, Yair, 2002. "Patent Licensing: The Inside Story," Manchester School, University of Manchester, vol. 70(1), pages 7-15, January.
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Citations

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Cited by:
  1. Marie-Laure CABON-DHERSIN & Rim LAHMANDI-AYED, 2011. "R&D Organization: Cooperation or Cross-Licensing?," Discussion Papers (REL - Recherches Economiques de Louvain) 2011012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Changying Li & Junmei Wang, 2010. "Licensing a Vertical Product Innovation," The Economic Record, The Economic Society of Australia, vol. 86(275), pages 517-527, December.
  3. Nguyen, Xuan & Sgro, Pasquale & Nabin, Munirul, 2014. "Licensing under vertical product differentiation: Price vs. quantity competition," Economic Modelling, Elsevier, vol. 36(C), pages 600-606.
  4. Li, Changying & Ji, Xiaoming, 2010. "Innovation, licensing, and price vs. quantity competition," Economic Modelling, Elsevier, vol. 27(3), pages 746-754, May.

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