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Innovation, Competition, and Incomplete Adoption of a Superior Technology

Author

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  • Luca Sandrini

    (DSEA, University of Padova)

Abstract

This paper shows that competition exerts a feedback effect on innovation. First, down- stream competition increases the willingness to pay for a more efficient technology (the direct effect). Second, a sufficiently large innovation may provide the licensees with a robust strate- gic advantage that forces non-adopters out of business. In turn, this raises the licensee’s willingness to pay to survive in the market (the indirect effect). More specifically, if the competition is very intense, even a tiny innovation may entail drastic effects in the market. Moreover, this article shows that royalties do not always imply the complete adoption of a superior technology because of competition’s indirect effect on innovation. An innovator may prefer to license a large innovation to a subset of firms at a discounted price, regardless of the contract scheme enforced. Finally, this article suggests that the removal of inefficient firms is not welfare-improving from a policy perspective.

Suggested Citation

  • Luca Sandrini, 2020. "Innovation, Competition, and Incomplete Adoption of a Superior Technology," "Marco Fanno" Working Papers 0251, Dipartimento di Scienze Economiche "Marco Fanno".
    • Handle: RePEc:pad:wpaper:0251
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    References listed on IDEAS

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    1. Navarra, Federico & Pino, Flavio & Sandrini, Luca, 2024. "Mandated data-sharing in hybrid marketplaces," ZEW Discussion Papers 24-051, ZEW - Leibniz Centre for European Economic Research.

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    More about this item

    Keywords

    Innovation; Licensing; Oligopoly; Competition;
    All these keywords.

    JEL classification:

    • 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
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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