Licensing a product innovation from an external innovator to a Stackelberg duopoly

Antelo, Manel and Bru, Lluís (2023): Licensing a product innovation from an external innovator to a Stackelberg duopoly.

Abstract

We study the licensing of a product innovation from an external innovator in a duopoly of firms that compete sequentially with each other through quantities or prices. We find that the innovation is only licensed to a single firm, regardless of market competition. However, both the licensee and contractual terms under quantity competition differ from those under price competition. In the first case, the innovation is licensed to the market-leading firm through a non-distorting contract, and in the second case, to the market-following firm by means of a two-part tariff (distorting) contract involving a per-unit royalty.

• Item Type: MPRA Paper
• Language: English
• Keywords: Product innovation, licensing, Stackelberg duopoly, quantity competition, price competition
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D45 - Rationing ; Licensing

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