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Why some product innovations are licensed and others are not?

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  • Antelo, Manel
  • Bru, Lluís

Abstract

We study in a Stackelberg industry the licensing of a product that embodies an innovation (quality-improving product) whose owner may be the firm that plays as a leader or a follower in setting output in the the product market. We find that the innovation is transferred (and social welfare is reduced) if its owner is the market-leader firm. However, if the innovation is in the hands of the market-follower firm, it is not licensed, even though licensing would be welfare enhancing. Thus, subsidizing R&D with the mandatory licensing of the resulting innovation may be a socially desirable policy.

Suggested Citation

  • Antelo, Manel & Bru, Lluís, 2023. "Why some product innovations are licensed and others are not?," Research in Economics, Elsevier, vol. 77(1), pages 152-158.
    • Handle: RePEc:eee:reecon:v:77:y:2023:i:1:p:152-158
    DOI: 10.1016/j.rie.2023.02.001
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    References listed on IDEAS

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    More about this item

    Keywords

    Product innovation; Licensing; Per-unit and ad-valorem royalties; Market leader and market follower; Welfare;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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