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Technology Licensing Versus Cannibalization, and Consumers' Welfare in Vertical Product Quality Market

Author

Listed:
  • Rui Yu
  • Leonard F. S. Wang
  • Di Wu

Abstract

This paper investigates the strategy choice of a high‐quality firm confronted with the entry of a low‐quality competitor in vertical product‐quality difference markets. We find that due to asymmetric market power, the high‐quality firm may prefer quality licensing over cannibalization as its optimal strategy. Fixed‐fee licensing contract has the potential to enhance consumer surplus and boost the profits of both firms, making it a potentially optimal choice for the high‐quality firm to license its technology to the low‐quality firm. Our study offers insights on the optimal strategy for a high‐quality firm when confronted with the presence of a low‐quality competitor.

Suggested Citation

  • Rui Yu & Leonard F. S. Wang & Di Wu, 2026. "Technology Licensing Versus Cannibalization, and Consumers' Welfare in Vertical Product Quality Market," American Journal of Economics and Sociology, Wiley Blackwell, vol. 85(3), pages 315-320, May.
    • Handle: RePEc:bla:ajecsc:v:85:y:2026:i:3:p:315-320
    DOI: 10.1111/ajes.70018
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    References listed on IDEAS

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    1. Henry Wang, X., 2002. "Fee versus royalty licensing in a differentiated Cournot duopoly," Journal of Economics and Business, Elsevier, vol. 54(2), pages 253-266.
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    6. Di Wu & Chien‐Shu Tsai & Leonard F. S. Wang & Can Yang, 2025. "Cannibalization, Import Tariffs, and Social Welfare in Vertical Product Differentiation," Review of International Economics, Wiley Blackwell, vol. 33(5), pages 1149-1163, November.
    7. Xingtang Wang & Leonard F. S. Wang, 2022. "Corporate cannibalism in an oligopolistic market," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(3), pages 402-417, September.
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