We analyse the impact of licensing on the equilibrium amount of cost-reducing innovation under several licensing mechanisms in the case of a duopoly model with heterogeneous firms. Under a wide class of licensing mechanisms, we find that as product substitutability increases, the possibility of higher innovation under licensing compared to no licensing decreases. Therefore, firms’ heterogeneity is crucial to assess whether licensing incentivizes or not R&D cost-reducing investments.
Colombo, S., Does licensing promote innovation?, <<ECONOMICS OF INNOVATION AND NEW TECHNOLOGY>>, 2020; (29): 206-221. [doi:10.1080/10438599.2019.1601373] [http://hdl.handle.net/10807/145754]
Does licensing promote innovation?
Colombo, Stefano
2020
Abstract
We analyse the impact of licensing on the equilibrium amount of cost-reducing innovation under several licensing mechanisms in the case of a duopoly model with heterogeneous firms. Under a wide class of licensing mechanisms, we find that as product substitutability increases, the possibility of higher innovation under licensing compared to no licensing decreases. Therefore, firms’ heterogeneity is crucial to assess whether licensing incentivizes or not R&D cost-reducing investments.
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