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Free Licensing in a Differentiated Duopoly

Author

Listed:
  • Tarun Kabiraj

    (Indian Statistical Institute)

  • Rittwik Chatterjee

    (Hiralal Mazumdar Memorial College for Women)

  • Srobonti Chattopadhyay

    (Rabindra Bharati University)

Abstract

We construct a differentiated duopoly model to study whether free licensing can be profitable without network externalities and demand shift effect. The efficient firm possesses a superior input-saving technology and sells inputs to the backward firm. However, the optimal input price can be constrained or unconstrained in equilibrium depending on the constellation of parameters. We have shown that free licensing can be profitable if the innovation size is small and the transferee’s input production cost is sufficiently large. But free licensing is never profitable if products are homogeneous. An increase in market size also reduces the possibility of free licensing. We have also derived an implication of free licensing in the context of pollution problem.

Suggested Citation

  • Tarun Kabiraj & Rittwik Chatterjee & Srobonti Chattopadhyay, 2024. "Free Licensing in a Differentiated Duopoly," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 22(3), pages 589-613, September.
  • Handle: RePEc:spr:jqecon:v:22:y:2024:i:3:d:10.1007_s40953-024-00406-w
    DOI: 10.1007/s40953-024-00406-w
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    References listed on IDEAS

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    More about this item

    Keywords

    Transferred technology; Free licensing; Product differentiation; Input pricing;
    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
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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