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Licensing and the Incentive for Innovation


  • Arijit Mukherjee

    (Keele University)

  • Soma Mukherjee

    (Keele University)


Previous literature has mostly considered R&D and licensing activities separately. In this paper we examine the effect of licensing on R&D and social welfare. We show that the effect of licensing on the incentive for doing R&D is ambiguous and depends on the costs of doing R&D. We also show that the possibility of licensing can change the identity of the innovating firm. However, we find that social welfare is non- decreasing in presence of licensing.

Suggested Citation

  • Arijit Mukherjee & Soma Mukherjee, 2002. "Licensing and the Incentive for Innovation," Industrial Organization 0211008, EconWPA.
  • Handle: RePEc:wpa:wuwpio:0211008
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    References listed on IDEAS

    1. d'Aspremont, Claude & Jacquemin, Alexis, 1988. "Cooperative and Noncooperative R&D in Duopoly with Spillovers," American Economic Review, American Economic Association, vol. 78(5), pages 1133-1137, December.
    2. Salant, Stephen W, 1984. "Preemptive Patenting and the Persistence of Monopoly: Comment," American Economic Review, American Economic Association, vol. 74(1), pages 247-250, March.
    3. Suzumura, Kotaro, 1992. "Cooperative and Noncooperative R&D in an Oligopoly with Spillovers," American Economic Review, American Economic Association, vol. 82(5), pages 1307-1320, December.
    4. Arijit Mukherjee, 2002. "Subsidy and entry: the role of licensing," Oxford Economic Papers, Oxford University Press, vol. 54(1), pages 160-171, January.
    5. Gallini, Nancy T, 1984. "Deterrence by Market Sharing: A Strategic Incentive for Licensing," American Economic Review, American Economic Association, vol. 74(5), pages 931-941, December.
    6. Mukhopadhyay, Sankar & Kabiraj, Tarun & Mukherjee, Arijit, 1999. "Technology transfer in duopoly The role of cost asymmetry," International Review of Economics & Finance, Elsevier, vol. 8(4), pages 363-374, November.
    7. Bester, Helmut & Petrakis, Emmanuel, 1993. "The incentives for cost reduction in a differentiated industry," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 519-534.
    8. Arijit Mukherjee, 2001. "Technology transfer with commitment," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 17(2), pages 345-369.
    9. Marjit, Sugata, 1990. "On a non-cooperative theory of technology transfer," Economics Letters, Elsevier, vol. 33(3), pages 293-298, July.
    10. Jeroen Hinloopen, 1997. "Subsidizing cooperative and noncooperative R&D in duopoly with spillovers," Journal of Economics, Springer, vol. 66(2), pages 151-175, June.
    11. Kamien, Morton I & Muller, Eitan & Zang, Israel, 1992. "Research Joint Ventures and R&D Cartels," American Economic Review, American Economic Association, vol. 82(5), pages 1293-1306, December.
    12. Reinganum, Jennifer F., 1989. "The timing of innovation: Research, development, and diffusion," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 14, pages 849-908 Elsevier.
    13. Tarun Kabiraj & Arijit Mukherjee, 2000. "Cooperation in R&D and production: a three-firm analysis," Journal of Economics, Springer, vol. 71(3), pages 281-304, October.
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    Cited by:

    1. Chang, Ray-Yun & Hwang, Hong & Peng, Cheng-Hau, 2013. "Technology licensing, R&D and welfare," Economics Letters, Elsevier, vol. 118(2), pages 396-399.
    2. Arijit Mukherjee & Soma Mukherjee, 2008. "Excess-Entry Theorem: The Implications Of Licensing," Manchester School, University of Manchester, vol. 76(6), pages 675-689, December.

    More about this item


    Licensing; R&D; Welfare;

    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
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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