Licensing of a lower-cost production process to an asymmetric Cournot duopoly
AbstractAn outside inventor of a new production process seeks to license it to Cournot duopolists which have unequal ex ante costs. Distinguishing "leading-edge" innovations (new cost below both firms' costs) from "catch-up" innovations (new cost between the two firms' costs), we compare the equilibria of two license-selling mechanisms: exclusive license auction and non-exclusive price-setting. In contrast to the often-studied case of an innovation that reduces the cost of any licensee by the same amount, we show that licensing of a new process may attenuate the ex ante cost asymmetry, allow the inefficient firm to leapfrog its competitor, and raise the licensee's net profits.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 23017.
Date of creation: Jan 2009
Date of revision:
Publication status: Published in Gakushuin Economic Papers 4.45(2009): pp. 325-336
cost-reducing innovation; technology licensing;
Find related papers by JEL classification:
- D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
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