Innovation, Competition, and Incomplete Adoption of a Superior Technology

Luca Sandrini

No 251, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: This paper shows that competition exerts a feedback effect on innovation. First, down- stream competition increases the willingness to pay for a more efficient technology (the direct effect). Second, a sufficiently large innovation may provide the licensees with a robust strate- gic advantage that forces non-adopters out of business. In turn, this raises the licensee’s willingness to pay to survive in the market (the indirect effect). More specifically, if the competition is very intense, even a tiny innovation may entail drastic effects in the market. Moreover, this article shows that royalties do not always imply the complete adoption of a superior technology because of competition’s indirect effect on innovation. An innovator may prefer to license a large innovation to a subset of firms at a discounted price, regardless of the contract scheme enforced. Finally, this article suggests that the removal of inefficient firms is not welfare-improving from a policy perspective.

Keywords: Innovation; Licensing; Oligopoly; Competition (search for similar items in EconPapers)
JEL-codes: L13 L24 O31 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2020-05
New Economics Papers: this item is included in nep-com, nep-ind and nep-ino
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Journal Article: Innovation, competition, and incomplete adoption of a superior technology (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0251

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