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

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  • Dimitry Rtischev

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.

Suggested Citation

  • Dimitry Rtischev, 2009. "Licensing of a lower-cost production process to an asymmetric Cournot duopoly," Gakushuin Economic Papers, Gakushuin University, Faculty of Economics, vol. 45(4), pages 325-336.
    • Handle: RePEc:abc:gakuep:45-4-4
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    References listed on IDEAS

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    6. Sen, Debapriya & Tauman, Yair, 2007. "General licensing schemes for a cost-reducing innovation," Games and Economic Behavior, Elsevier, vol. 59(1), pages 163-186, April.
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    Cited by:

    1. Bruno D. Badia, 2019. "Patent Licensing and Technological Catch-Up in a Heterogeneous Duopoly," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(2), pages 287-300, September.
    2. Kuang-Cheng Andy Wang & Ching-Chih Tseng & Wen-Jung Liang, 2016. "Patent Licensing in the Presence of Trade Barriers," The Japanese Economic Review, Japanese Economic Association, vol. 67(3), pages 329-347, September.
    3. Kuang-Cheng Andy Wang & Ching-Chih Tseng & Wen-Jung Liang, 2016. "Patent Licensing in the Presence of Trade Barriers," The Japanese Economic Review, Springer, vol. 67(3), pages 329-347, September.

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    More about this item

    Keywords

    cost-reducing innovation; technology licensing;

    JEL classification:

    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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