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Ad valorem royalty licensing is implemented when the licensor (i.e., patent‐holding firm) obtains ownership shares in the licensee as payment once the new technology is transferred. In a Cournot duopoly model, we compare two licensing forms between competitors of different productivity, ad valorem and per‐unit royalty licensing. This paper finds that ad valorem royalty licensing is superior to per‐unit royalty licensing for the patent‐holding firm when the cost‐reducing innovation is non‐drastic. The reason for this result is that cross ownership reduces output market competition and thus the patent‐holding firm enjoys better profit margins by strategically setting the share ratio. Furthermore, we show that the relieved competition under ad valorem royalty licensing pulls down the industry output, and thus hurts consumer surplus and social welfare in comparison to per‐unit royalty licensing.

Using a standard differentiated goods quantity competition setting, we show three facts about horizontal two-firm mergers that are not true for a homogeneous goods Cournot market. First, merger of two firms is profitable for the merging firms provided that goods are sufficiently distant substitutes. Second, merging of two firms can lead to more two-firm mergers. Third, an initially non-profitable two-firm merger can occur in anticipation of subsequent mergers. These facts imply that mergers are more likely to occur in differentiated goods markets than in homogeneous goods markets.

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This paper uses a two-country two-firm imperfect competition model where each firm is located in a different country. We study the effects of firms' innovation and exchange rate change on their international expansion choices. As in Petit and Sanna-Randaccio (2000), the market structure is endogenously determined by the subgame perfect Nash equilibrium of a three-stage game that involves three different decisions by the firms: how to expand abroad, how much to invest in R&D, and how much to sell in each country under different market configurations. Since the price of output is directly affected by the exchange rate, we carefully include the impact of an anticipated exchange rate change in the future on firms' current decisions. The results show that an increase in R&D productivity leads firms towards multinational expansion. Furthermore, home currency appreciation also raises the likelihood of FDI by firms. Compared with the results of Petit and Sanna-Randaccio (2000), mixed duopoly is more likely to arise under exchange rate fluctuation in our model.innovation, exchange rate changes, mode of foreign expansion,

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