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Innovation, licensing, and price vs. quantity competition

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  • Li, Changying
  • Ji, Xiaoming

Abstract

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.

Suggested Citation

  • Li, Changying & Ji, Xiaoming, 2010. "Innovation, licensing, and price vs. quantity competition," Economic Modelling, Elsevier, vol. 27(3), pages 746-754, May.
  • Handle: RePEc:eee:ecmode:v:27:y:2010:i:3:p:746-754
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    References listed on IDEAS

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    Cited by:

    1. Chang Ray-Yun & Hu Jin-Li & Lin Yan-Shu, 2018. "The Choice of Prices versus Quantities under Outsourcing," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(2), pages 1-20, July.
    2. Hasnas, Irina & Lambertini, Luca & Palestini, Arsen, 2014. "Open Innovation in a dynamic Cournot duopoly," Economic Modelling, Elsevier, vol. 36(C), pages 79-87.
    3. Pal, Rupayan, 2015. "Cournot vs. Bertrand under relative performance delegation: Implications of positive and negative network externalities," Mathematical Social Sciences, Elsevier, vol. 75(C), pages 94-101.
    4. Wu, Cheng-Han & Kao, Yi-Jhe, 2018. "Cooperation regarding technology development in a closed-loop supply chain," European Journal of Operational Research, Elsevier, vol. 267(2), pages 523-539.
    5. Chang Ray-Yun & Hwang Hong & Peng Cheng-Hau, 2017. "Competition, Product Innovation and Licensing," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(1), pages 1-14, February.
    6. Sainati, Tristano & Locatelli, Giorgio & Smith, Nigel, 2019. "Project financing in nuclear new build, why not? The legal and regulatory barriers," Energy Policy, Elsevier, vol. 129(C), pages 111-119.
    7. Zou, Yuxiang & Chen, Tai-Liang, 2020. "Quality differentiation and product innovation licensing," Economic Modelling, Elsevier, vol. 87(C), pages 372-382.
    8. Xu, Lili & Cho, Sumi & Lee, Sang-Ho, 2016. "Emission tax and optimal privatization in Cournot–Bertrand comparison," Economic Modelling, Elsevier, vol. 55(C), pages 73-82.
    9. Zhang, Yanfang, 2020. "When should firms choose a risky new technology? An oligopolistic analysis," Economic Modelling, Elsevier, vol. 91(C), pages 687-693.
    10. Luciano Fanti & Nicola Meccheri, 2015. "On the Cournot–Bertrand Profit Differential and the Structure of Unionisation in a Managerial Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 54(4), pages 266-287, December.
    11. Stefano Colombo, 2015. "Licensing Under Bertrand Competition Revisited," Australian Economic Papers, Wiley Blackwell, vol. 54(1), pages 38-42, March.
    12. Bian, Junsong & Lai, Kin Keung & Hua, Zhongsheng & Zhao, Xuan & Zhou, Guanghui, 2018. "Bertrand vs. Cournot competition in distribution channels with upstream collusion," International Journal of Production Economics, Elsevier, vol. 204(C), pages 278-289.
    13. Nguyen, Xuan & Sgro, Pasquale & Nabin, Munirul, 2014. "Licensing under vertical product differentiation: Price vs. quantity competition," Economic Modelling, Elsevier, vol. 36(C), pages 600-606.
    14. Wu, Cheng-Han, 2019. "Licensing to a competitor and strategic royalty choice in a dynamic duopoly," European Journal of Operational Research, Elsevier, vol. 279(3), pages 840-853.
    15. Kabiraj, Abhishek & Kabiraj, Tarun, 2017. "Tariff induced licensing contracts, consumers’ surplus and welfare," Economic Modelling, Elsevier, vol. 60(C), pages 439-447.

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