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Licensing of a drastic innovation with product differentiation

Doğanoğlu, Uğur Toker and İnceoğlu, Fırat (2011) Licensing of a drastic innovation with product differentiation. [Working Paper / Technical Report] Sabanci University ID:SU_FASS_2010/0005

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Abstract

We analyze the licensing of a drastic innovation when products are differentiated due to consumer and/or product heterogeneity. We show that an industry insider prefers to divest its production arm and license the new technology as an industry outsider, in which case it can replicate multiproduct monopoly profits. We derive the optimal contracts and the optimal number of licenses by assuming a logit demand system. Optimal number of licenses, quite strikingly, increases when the technology has a higher relative value than a commercialized alternative. This result stands in sharp contrast with the literature on the licensing of a homogenous good.

Item Type:Working Paper / Technical Report
Uncontrolled Keywords:Patent licensing, price competition, product differentiation
Subjects:H Social Sciences > HF Commerce > HF5410-5417.5 Marketing. Distribution of products
H Social Sciences > HD Industries. Land use. Labor > HD0045-45.2 Technological innovations
ID Code:16361
Deposited By:Fırat İnceoğlu
Deposited On:18 Feb 2011 15:13
Last Modified:18 Feb 2011 15:13

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