Technology Licensing to a Rival

Caroline Boivin and Corinne Langinier

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: Licensing a new technology implies introducing competition into the market. This has a negative effect on the profit of the incumbent if the demand remains unchanged. However, because of the novel content of an innovation, consumers may have different perceptions of the value of a good depending on the market structure. Thus, the introduction of a competitor into the market may enhance demand, and consequently have a positive effect on the profit of the incumbent. In a simple setting, we show that the incumbent may decide to license her technology even in the absence of a royalty when the positive effect outweighs the negative one.

Date: 2005-09-01
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Published in Economics Bulletin, September 2005, vol. 12, pp. 1-8

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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:12414

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