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Licensing and R&D Investment of Duopolistic Firms with Partially Complementary Technologies

  • Testuya Shinkai

    ()

    (Kwansei Gakuin University)

  • Satoru Tanaka

    (Kobe City University of Foreign Studies)

  • Makoto Okamura

    (Hiroshima University)

We consider research and development (R&D) investment competition between duopolistic firms that independently invest in two complementary technologies to produce their products. By "partially complementary technologies", we mean that each firm can produce the goods without both technologies but they incur more redundant costs than with both technologies. We derive the investment competition equilibria in R&D of the two technologies with and without a licensing system. By comparing R&D investment levels in the two equilibria, we show that the licensing system discourages R&D investment in most cases; however, it encourages R&D investment in some cases when the duopolistic firms can produce the goods using both technologies. We also show that (cross-) licensing increases the expected social surplus at the symmetric equilibrium.

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File URL: http://192.218.163.163/RePEc/pdf/kgdp25.pdf
File Function: First version, 2005
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Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 25.

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Length: 53 pages
Date of creation: Mar 2005
Date of revision: Mar 2005
Handle: RePEc:kgu:wpaper:25
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  1. Green, J.R. & Scotchmer, S., 1993. "On the Division of Profit in Sequential Innovation," Harvard Institute of Economic Research Working Papers 1638, Harvard - Institute of Economic Research.
  2. Makoto Okamura & Testuya Shinkai & Satoru Tanaka, 2005. "A Cross-Licensing System Discourages R&D Investments In Completely Complementary Technologies," Discussion Paper Series 27, School of Economics, Kwansei Gakuin University, revised Sep 2005.
  3. Howard F. Chang, 1995. "Patent Scope, Antitrust Policy, and Cumulative Innovation," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 34-57, Spring.
  4. Merges, Robert P. & Nelson, Richard R., 1994. "On limiting or encouraging rivalry in technical progress: The effect of patent scope decisions," Journal of Economic Behavior & Organization, Elsevier, vol. 25(1), pages 1-24, September.
  5. Wesley M Cohen & Richard R Nelson & John P Walsh, 2003. "Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (Or Not)," Levine's Working Paper Archive 618897000000000624, David K. Levine.
  6. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
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