Believe It or Not: Strategic Licensing Makes R&D Alliance Profitable

Tannista Banerjee and Sengupta Aditi ()
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Sengupta Aditi: Department of Economics, Auburn University, 109C Miller HallAuburn, USA

The B.E. Journal of Economic Analysis & Policy, 2019, vol. 19, issue 4, 6

Abstract: We consider a market where firms (that compete in the product market) invest in the research and development (R&D) activities with no guaranteed success and engage in a patent race for intellectual property rights. We analyze the effects of a strategic (ex ante) licensing contract on the equilibrium investment behavior of competing firms that form a research and development (R&D) alliance to win a patent race. We show that the R&D alliance members that sign strategic licensing contract invest more in the R&D and earn higher expected profits compared to the firms in an R&D cartel and R&D joint venture cartel without any strategic licensing as well as the firms that aggressively compete in the innovation market to win the patent race.

Keywords: ex ante licensing; R&D alliance; R&D cartel; uncertain R&D (search for similar items in EconPapers)
JEL-codes: L24 O31 O38 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1515/bejeap-2018-0358

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