License or entry with vertical differentiation in duopoly

Hattori, Masahiko and Tanaka, Yasuhito (2016): License or entry with vertical differentiation in duopoly. Forthcoming in: Economics and Business Letters

Abstract

We consider choice of options for a foreign innovating firm to license its technology for producing the high quality good to a domestic firm, or to enter the market of the domestic country with or without license. Under the assumption of uniform distribution about taste parameters of consumers; when cost functions are linear, if the low quality good’s quality is sufficiently high, license without entry strategy is optimum; if the low quality good’s quality is low, both of entry without license strategy and license without entry strategy are optimum; when cost functions are quadratic, if the high quality good’s quality is high, license without entry strategy is optimum; if the high quality good’s quality is low, entry with license strategy is optimum.

• Item Type: MPRA Paper
• Language: English
• Keywords: license, entry, duopoly, vertical differentiation, foreign innovating firm
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection

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