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The Welfare Effects of Licensing Product-Differentiating Technology in a Commodity Market

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  • H. Phoebe Chan

    (Wheaton College)

Abstract

An innovation that creates horizontal product differentiation is offered to downstream producers that face price competition in a homogeneous commodity market. Innovations can be single-product or multi-product technologies. Adopters of single-product technologies produce identical products, but their products are differentiated from the commodity product. Adopters of multi-product technologies differentiate their products from other adopters and non-adopters. Model results indicate that widespread licensing improves consumer and social welfare; however, the number of licensees that maximizes the patent owner’s profits exceeds the number of licensees that maximizes consumer and social welfare.

Suggested Citation

  • H. Phoebe Chan, 2022. "The Welfare Effects of Licensing Product-Differentiating Technology in a Commodity Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(4), pages 491-510, June.
    • Handle: RePEc:kap:revind:v:60:y:2022:i:4:d:10.1007_s11151-022-09855-0
    DOI: 10.1007/s11151-022-09855-0
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    References listed on IDEAS

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