Why some product innovations are licensed and others are not?

Manel Antelo and Lluis Bru

Research in Economics, 2023, vol. 77, issue 1, 152-158

Abstract: We study in a Stackelberg industry the licensing of a product that embodies an innovation (quality-improving product) whose owner may be the firm that plays as a leader or a follower in setting output in the the product market. We find that the innovation is transferred (and social welfare is reduced) if its owner is the market-leader firm. However, if the innovation is in the hands of the market-follower firm, it is not licensed, even though licensing would be welfare enhancing. Thus, subsidizing R&D with the mandatory licensing of the resulting innovation may be a socially desirable policy.

Keywords: Product innovation; Licensing; Per-unit and ad-valorem royalties; Market leader and market follower; Welfare (search for similar items in EconPapers)
JEL-codes: D43 D45 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reecon:v:77:y:2023:i:1:p:152-158

DOI: 10.1016/j.rie.2023.02.001

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