 Incumbency and R&D Incentives: Licensing the Gale of Creative DestructionJoshua Gans and Scott Stern Journal of Economics & Management Strategy, 2000, vol. 9, issue 4, 485-511 Abstract: This paper analyzes the relationship between incumbency and R&D incentives in the context of a model of technological competition in which technologically successful entrants are able to license their innovation to (or be acquired by) an incumbent. That such a sale should take place is natural, since postinnovation monopoly profits are greater than the sum of duopoly profits. We identify three key findings about how innovative activity is shaped by licensing. First, since an incumbent's threat to engage in imitative R&D during negotiations increases its bargaining power, there is a purely strategic incentive for incumbents to develop an R&D capability. Second, incumbents research more intensively than entrants as long as (and only if) their willingness to pay for the innovation exceeds that of the entrant, a condition that depends critically on the expected licensing fee. Third, when the expected licensing fee is sufficiently low, the incumbent considers entrant R&D a strategic substitute for in‐house research. This prediction about the market for ideas stands in contrast to predictions of strategic complementarity in patent races where licensing is not allowed. Date: 2000 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:9:y:2000:i:4:p:485-511 Ordering information: This journal article can be ordered from Access Statistics for this article More articles in Journal of Economics & Management Strategy from Wiley Blackwell |
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