Vertical differentiation in oligopoly and license fees when outside innovator can enter the market: Two-step auction

Masahiko Hattori () and Yasuhito Tanaka

MPRA Paper from University Library of Munich, Germany

Abstract: When an outside innovating firm has a technology to produce a higher quality good than the good produced at present, it can sell licenses of its technology to incumbent firms, or enter the market and at the same time sell licenses, or enter the market without license. We examine the definitions of license fee in such a situation in an oligopoly with three firms under vertical product differentiation, one outside innovating firm and two incumbent firms, considering threat by entry of the innovating firm using a two-step auction. Also we show that in the case of uniform distribution of consumers' taste parameter and zero cost when the quality improvement (the difference between the quality of the high-quality good and the quality of the low-quality good) is small (or large), the two-step auction is (or is not) credible.

Keywords: license; entry; oligopoly; vertical differentiation; two-step auction (search for similar items in EconPapers)
JEL-codes: D43 L13 (search for similar items in EconPapers)
Date: 2017-05-07
New Economics Papers: this item is included in nep-bec, nep-com and nep-ino
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:78987

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