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License or entry decision for innovator in international duopoly with convex cost functions

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  • Hattori, Masahiko
  • Tanaka, Yasuhito

Abstract

We consider a choice of options for a foreign innovating firm to license its new cost-reducing technology to a domestic incumbent firm or to enter the domestic market with or without license under convex cost functions. With convex cost functions the domestic market and the foreign market are not separated, and the results depend on the relative size of those markets. In a specific case with linear demand and quadratic cost, entry without license strategy is never the optimal strategy for the innovating firm; if the ratio of the size of the foreign market relatively to the domestic market is small, license with entry strategy is optimal; and if the ratio of the size of the foreign market relatively to the domestic market is not small, license without entry strategy is optimal.

Suggested Citation

  • Hattori, Masahiko & Tanaka, Yasuhito, 2017. "License or entry decision for innovator in international duopoly with convex cost functions," MPRA Paper 78996, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:78996
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    References listed on IDEAS

    as
    1. X. Henry Wang & Bill Z. Yang, 2004. "On Technology Licensing In A Stackelberg Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 43(4), pages 448-458, December.
    2. Masahiko Hattori & Yasuhito Tanaka, 2014. "Incentive for adoption of new technology in duopoly under absolute and relative profit maximization," Economics Bulletin, AccessEcon, vol. 34(3), pages 2051-2059.
    3. Sen, Debapriya & Tauman, Yair, 2007. "General licensing schemes for a cost-reducing innovation," Games and Economic Behavior, Elsevier, vol. 59(1), pages 163-186, April.
    4. Michael L. Katz & Carl Shapiro, 1985. "On the Licensing of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 504-520, Winter.
    5. Anne Duchêne & Debapriya Sen & Konstantinos Serfes, 2015. "Patent Licensing and Entry Deterrence: The Role of Low Royalties," Economica, London School of Economics and Political Science, vol. 82, pages 1324-1348, December.
    6. Tarun Kabiraj, 2004. "Patent Licensing in a Leadership Structure," Manchester School, University of Manchester, vol. 72(2), pages 188-205, March.
    7. Morton I. Kamien & Yair Tauman, 2002. "Patent Licensing: The Inside Story," Manchester School, University of Manchester, vol. 70(1), pages 7-15, January.
    8. Masahiko Hattori & Yasuhito Tanaka, 2015. "Subsidy or tax policy for new technology adoption in duopoly with quadratic and linear cost functions," Economics Bulletin, AccessEcon, vol. 35(2), pages 1423-1433.
    9. Masahiko Hattori & Yasuhito Tanaka, 2016. "License or entry with vertical differentiation in duopoly," Economics and Business Letters, Oviedo University Press, vol. 5(1), pages 17-29.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    license with or without entry; duopoly; foreign and domestic markets; foreign innovating firm;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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