Licensing of a lower-cost production process to an asymmetric Cournot duopoly

Rtischev, Dimitry (2009): Licensing of a lower-cost production process to an asymmetric Cournot duopoly. Published in: Gakushuin Economic Papers , Vol. 45, No. 4 (January 2009): pp. 325-336.

Abstract

An outside inventor of a new production process seeks to license it to Cournot duopolists which have unequal ex ante costs. Distinguishing "leading-edge" innovations (new cost below both firms' costs) from "catch-up" innovations (new cost between the two firms' costs), we compare the equilibria of two license-selling mechanisms: exclusive license auction and non-exclusive price-setting. In contrast to the often-studied case of an innovation that reduces the cost of any licensee by the same amount, we show that licensing of a new process may attenuate the ex ante cost asymmetry, allow the inefficient firm to leapfrog its competitor, and raise the licensee's net profits.

• Item Type: MPRA Paper
• Language: English
• Keywords: cost-reducing innovation; technology licensing
• Subjects: D - Microeconomics > D4 - Market Structure and Pricing > D45 - Rationing; Licensing; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L24 - Contracting Out; Joint Ventures; Technology Licensing; O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O31 - Innovation and Invention: Processes and Incentives

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