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Licensing of a lower-cost production process to an asymmetric Cournot duopoly

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  • Rtischev, Dimitry

Abstract

An 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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File URL: http://mpra.ub.uni-muenchen.de/23017/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23017.

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Date of creation: Jan 2009
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Publication status: Published in Gakushuin Economic Papers 4.45(2009): pp. 325-336
Handle: RePEc:pra:mprapa:23017

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Related research

Keywords: cost-reducing innovation; technology licensing;

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References

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  1. Shapiro, Carl, 1985. "Patent Licensing and R&D Rivalry," American Economic Review, American Economic Association, vol. 75(2), pages 25-30, May.
  2. Funk, Peter, 1996. "Auctions with Interdependent Valuations," International Journal of Game Theory, Springer, vol. 25(1), pages 51-64.
  3. Debapriya Sen & Yair Tauman, 2002. "General licensing schemes for a cost-reducing innovation," Department of Economics Working Papers 02-03, Stony Brook University, Department of Economics.
  4. 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.
  5. Wang, X. Henry, 1998. "Fee versus royalty licensing in a Cournot duopoly model," Economics Letters, Elsevier, vol. 60(1), pages 55-62, July.
  6. Hector Chade & Jorge Aseff, . "An Optimal Auction with Identity-Dependent Externalities," Working Papers 2133477, Department of Economics, W. P. Carey School of Business, Arizona State University.
  7. Katz, Michael L & Shapiro, Carl, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 567-89, August.
  8. Jorge Aseff & Hector Chade, 2008. "An optimal auction with identity-dependent externalities," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 731-746.
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