The Effects of Downstream Competition on Upstream Innovation and Licensing

Jean-Etienne de Bettignies, Bulat Gainullin, Hua Fang Liu and David Robinson

No 25166, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study how competition between two downstream firms affects an upstream innovator's innovation strategy, which includes selecting how much innovation to produce and whether to license this innovation to one (targeted licensing) or both (market-wide licensing) downstream competitors. Our model points to a U-shaped relationship between downstream competition and upstream innovation: at low levels of competition, market-wide licensing is optimal and competition reduces innovation, while at high levels of competition targeted licensing is optimal and competition increases innovation. Empirical analysis using a large panel of US data provides clear support for these predictions linking competition, innovation and licensing.

JEL-codes: L22 L24 O31 O32 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-com, nep-mic and nep-sbm
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