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Ex-ante licensing in sequential innovations

Stefano Comino (), Fabio Manenti () and Antonio Nicolo' ()

Games and Economic Behavior, 2011, vol. 73, issue 2, 388-401

Abstract: The theoretical literature on the cumulative innovation process has emphasized the role of ex-ante licensing – namely, licensing agreements negotiated before the follow-on innovator has sunk its R&D investment – in mitigating the risk of hold-up of future innovations. In this paper, we consider a patent-holder and a follow-on innovator bargaining over the licensing terms in a context where the former firm is unable to observe the timing of the R&D investment of the latter. We show that the possibilities of restoring the R&D incentives by setting the licensing terms appropriately are severely limited.

Keywords: Sequential innovation; Patents; Licensing; Intellectual property; Information acquisition (search for similar items in EconPapers)
JEL-codes: L10 O31 O34 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1016/j.geb.2011.02.007

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