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Innovation, licensing, and price vs. quantity competition

  • Li, Changying
  • Ji, Xiaoming

In this paper, we develop a differentiated duopoly model with endogenous cost-reducing R&D and review the argument on welfare effect of price and quantity competition in the presence of technology licensing. We show that, with licensing, the standard conclusion on duopoly (Singh and Vives, 1984) is completely reversed. Cournot competition induces lower R&D investment than Bertrand competition does. Moreover, Cournot competition leads to lower prices, lower industry profit, higher consumer surplus and higher social welfare than Bertrand competition.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 27 (2010)
Issue (Month): 3 (May)
Pages: 746-754

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Handle: RePEc:eee:ecmode:v:27:y:2010:i:3:p:746-754
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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  4. Arijit Mukherjee, 2002. "Innovation, Licensing and Welfare," Keele Economics Research Papers KERP 2002/03, Centre for Economic Research, Keele University.
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  8. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716.
  9. Li, Changying & Geng, Xiaoyan, 2008. "Licensing to a durable-good monopoly," Economic Modelling, Elsevier, vol. 25(5), pages 876-884, September.
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  14. Ramón Faulí-Oller & Joel Sandonís, 2000. "Welfare Reducing Licensing," Working Papers. Serie AD 2000-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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  16. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
  17. Nisvan Erkal, 2004. "Optimal Licensing Policy in Differentiated Industries," Department of Economics - Working Papers Series 894, The University of Melbourne.
  18. Morton I. Kamien & Yair Tauman, 1986. "Fees Versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 471-491.
  19. Arya, Anil & Mittendorf, Brian & Sappington, David E.M., 2008. "Outsourcing, vertical integration, and price vs. quantity competition," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 1-16, January.
  20. Häckner, Jonas, 1999. "A Note on Price and Quantity Competition in Differentiated Oligopolies," Research Papers in Economics 1999:9, Stockholm University, Department of Economics.
  21. Lin, Ping, 1996. "Fixed-Fee Licensing of Innovations and Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 44(4), pages 443-49, December.
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  24. Li, Changying & Song, Juan, 2009. "Technology licensing in a vertically differentiated duopoly," Japan and the World Economy, Elsevier, vol. 21(2), pages 183-190, March.
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