Asymmetric Oligopoly and Technology Transfers

2018

J Ind Compet Trade

We consider a choice of options for an innovating firm to enter the market with or without licensing its new cost-reducing technology to the incumbent firm using a combination of a royalty per output and a fixed license fee, or to license its technology without entry. With general demand and cost functions we show the following results. When the innovating firm licenses its technology to the incumbent firm without entry, the optimal royalty rate per output for the innovating firm is zero with negative fixed fee, and when the innovating firm enters the market and at the same time licenses its technology to the incumbent firm, the optimal royalty rate is positive with positive or negative fixed fee. Also we show that when cost functions are concave, the optimal royalty rate is one such that the incumbent firm drops out of the market and license without entry strategy and entry with license strategy are optimal for the innovator; and when cost functions are strictly convex, there is an internal solution of the optimal royalty rate under duopoly and entry with license strategy is optimal for the innovator.

Section: Quadratic Cost Functionsmentioning

confidence: 99%

License and Entry Strategies for an Outside Innovator Under Duopoly with Combination of Royalty and Fixed Fee

Hattori

2018

J Ind Compet Trade

“…This topic is addressed under Stackelberg oligopoly both when a licensor has production capacity (Wang and Yang (2004); Kabiraj (2005);Filippini (2005)) and when it lacks production capacity (Kabiraj (2004)). La Manna (1993) analyzes a Cournot oligopoly with a fixed fee under cost asymmetry, and shows that if technologies can be replicated perfectly, a lower-cost firm always has an incentive to transfer its technology. Hence, a Cournot-Nash equilibrium cannot be fully asymmetric, but there exists no non-cooperative Nash equilibrium in pure strategies.…”

Section: Related Literaturementioning

confidence: 99%

Subsidizing New Technology Adoption in a Stackelberg Duopoly: Cases of Substitutes and Complements

Hattori

2016

Ital Econ J

Economic growth requires that firms adopt new technologies. However, it may be insufficient in less competitive industries from the social welfare point of view. In this case, a government subsidy is necessary. We present an analysis of firms' adoption of new technology and government subsidization policy in a Stackelberg duopoly with differentiated goods. The technology itself is free, but each firm must expend a fixed set-up cost, such as training employees. There are several cases related to optimal policies depending on the set-up costs and whether the goods are substitutes or complements. In particular, there are two cases.1. Social welfare is maximized when only the Stackelberg leader adopts the new technology, but no firm adopts the new technology without a subsidy. Then, the government should subsidize only the leader, which is a discriminatory policy. (Case 5 of Theorem 1 and Case 3-(1)-ii of Theorem 2) 2. Social welfare is maximized when both firms adopt the new technology, but only the leader adopts the new technology without a subsidy. Then, the government should subsidize only the follower. This policy is not discriminatory because adoption is the dominant strategy for the leader. (Case 2 of Theorem 1)

“…This topic 18 5(1), [17][18][19][20][21][22][23][24][25][26][27][28][29]2016 under Stackelberg oligopoly is discussed in Kabiraj (2004) when the licensor does not have production capacity, and discussed in Wang and Yang (2004) and Filippini (2005), when the licensor has production capacity. A Cournot oligopoly with fixed fee under cost asymmetry is analyzed in La Manna (1993). He shows that if technologies can be replicated perfectly, a lower-cost firm always has the incentive to transfer its technology and hence a Cournot-Nash equilibrium cannot be fully asymmetric, but there exists no non-cooperative Nash equilibrium in pure strategies.…”

Section: Introductionmentioning

confidence: 99%

License or entry with vertical differentiation in duopoly

Hattori¹,

2016

Econom. bus. letters

We consider choice of options for a foreign innovating firm to license its technology for producing the high quality good to a domestic firm, or to enter the market of the domestic country with or without license. Under the assumption of uniform distribution about taste parameters of consumers; when cost functions are linear, if the low quality good's quality is sufficiently high, license without entry strategy is optimum; if the low quality good's quality is low, both of entry without license strategy and license without entry strategy are optimum; when cost functions are quadratic, if the high quality good's quality is high, license without entry strategy is optimum; if the high quality good's quality is low, entry with license strategy is optimum.