Bilateral Models of Cross-Licensing for Smart Products

Dan Zhao, Menghuan Zhou, Yeming Gong (), Huaige Zhang and Xianpei Hong ()
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Dan Zhao: Henan University of Science and Technology
Menghuan Zhou: HZAU - Huazhong Agricultural University [Wuhan]
Yeming Gong: EM - EMLyon Business School
Huaige Zhang: Guangdong University of Finance and Economics
Xianpei Hong: HZAU - Huazhong Agricultural University [Wuhan]

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Abstract: Motivated by the new practice of cross-licensing and price competition in smart products, as well as the lack of cross-licensing literature, this article develops a theoretical framework to investigate the incentive for bilateral cross-licensing between two competing firms with asymmetric bargaining power under price competition in smart products. In this article, one firm possesses quality-improving innovation, and another offers cost-reducing innovation for smart products. We find regardless of cost-reducing innovation scale, when the production cost of a holder of quality-improving technology is high enough, the competing firms have the motivation to cross-licensing; compared with a quantity competition, cross-licensing in price competition draws a higher price and producer surplus, but lower consumer surplus and poorer social welfare. This is an interesting finding for the discussion over whether a Bertrand price competition is more efficient than a Cournot quantity competition; and price competition, plus the stability of tacit collusion in cross-licensing, requires that participants have moderate bargaining power. Our article provides a potential explanation for the use of cross-licensing in the smart product industry with price competition, as well as management insights for decision makers by considering different effects elicited by cross-licensing of the smart products.

Keywords: AI; Bargaining; cost-reducing innovation; cross-licensing; quality-improving innovation; smart products; technology management (search for similar items in EconPapers)
Date: 2024-01-01
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Published in IEEE Transactions on Engineering Management, 2024, 71, 58-75 p. ⟨10.1109/TEM.2021.3109089⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04357265

DOI: 10.1109/TEM.2021.3109089

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