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Technology Licensing to a Rival

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  • Boivin, Caroline
  • Langinier, Corinne

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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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12414.

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Date of creation: 01 Sep 2005
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Publication status: Published in Economics Bulletin, September 2005, vol. 12, pp. 1-8
Handle: RePEc:isu:genres:12414

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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  1. Joseph Farrell and Nancy T. Gallini., 1986. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," Economics Working Papers 8618, University of California at Berkeley.
  2. Kathleen R. Conner, 1995. "Obtaining Strategic Advantage from Being Imitated: When Can Encouraging "Clones" Pay?," Management Science, INFORMS, vol. 41(2), pages 209-225, February.
  3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
  4. 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.
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