Economics at your fingertips  

Price competition and technology licensing in a dynamic duopoly

Cheng-Han Wu

European Journal of Operational Research, 2018, vol. 267, issue 2, 570-584

Abstract: Decisions regarding product innovations are inherently dynamic because for consumers to perceive constant improvement in product innovation, innovation must be current and continuously updated. Moreover, firms’ price and innovation decisions interact over time, adding to their dynamic nature. In this study, we examine price and innovation decisions in a dynamic duopoly of an innovating firm and a non-innovating firm. The innovating firm competes with the non-innovating firm on price and determines the innovation level that improves its consumers’ product valuation. The non-innovating firm lacks the technology to innovate but can obtain innovation by licensing. Consumer perceptions of product innovations evolve over time. In our study, we derive and characterize firms’ subgame-perfect Nash equilibrium decisions and profits. Additionally, we analyze the effects of technology licensing on firms’ instantaneous and steady-state equilibrium behaviors and on consumer perceptions of innovation. The analysis shows that firms’ myopia leads to a low innovation level and severe price competition, thereby reducing firm profits. Licensing is effective in mitigating the intensity of price competition and is beneficial for the innovating firm but not always for the non-innovating firm. Consumer perceptions of product similarity and capability to utilize technology stimulate the non-innovating firm to accept licensing.

Keywords: Supply chain management; Pricing competition; Product innovation; Dynamic game; Technology licensing (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-03-30
Handle: RePEc:eee:ejores:v:267:y:2018:i:2:p:570-584