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Ex-ante licensing in sequential innovations

  • Comino, Stefano
  • Manenti, Fabio M.
  • Nicolò, Antonio

The theoretical literature on the cumulative innovation process has emphasized the role of ex-ante licensing – namely, licensing agreements negotiated before the follow-on innovator has sunk its R&D investment – in mitigating the risk of hold-up of future innovations. In this paper, we consider a patent-holder and a follow-on innovator bargaining over the licensing terms in a context where the former firm is unable to observe the timing of the R&D investment of the latter. We show that the possibilities of restoring the R&D incentives by setting the licensing terms appropriately are severely limited.

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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 73 (2011)
Issue (Month): 2 ()
Pages: 388-401

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Handle: RePEc:eee:gamebe:v:73:y:2011:i:2:p:388-401
DOI: 10.1016/j.geb.2011.02.007
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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