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Technology Licensing to a Rival

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  • Boivin, Caroline
  • Langinier, Corinne

Abstract

Licensing a new technology implies introducing competition into the market. This has a negative effect on the profit of the incumbent if the demand remains unchanged. However, because of the novel content of an innovation, consumers may have different perceptions of the value of a good depending on the market structure. Thus, the introduction of a competitor into the market may enhance demand, and consequently have a positive effect on the profit of the incumbent. In a simple setting, we show that the incumbent may decide to license her technology even in the absence of a royalty when the positive effect outweighs the negative one.

Suggested Citation

  • Boivin, Caroline & Langinier, Corinne, 2005. "Technology Licensing to a Rival," Staff General Research Papers Archive 12414, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:12414
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    References listed on IDEAS

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    1. Kathleen R. Conner, 1995. "Obtaining Strategic Advantage from Being Imitated: When Can Encouraging "Clones" Pay?," Management Science, INFORMS, vol. 41(2), pages 209-225, February.
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    5. Bousquet, Alain & Cremer, Helmuth & Ivaldi, Marc & Wolkowicz, Michel, 1998. "Risk sharing in licensing," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 535-554, September.
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    Cited by:

    1. 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.

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    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D2 - Microeconomics - - Production and Organizations

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