[go: up one dir, main page]

IDEAS home Printed from https://ideas.repec.org/p/pad/wpaper/0251.html
   My bibliography  Save this paper

Innovation, Competition, and Incomplete Adoption of a Superior Technology

Author

Listed:
  • Luca Sandrini

    (DSEA, University of Padova)

Abstract
This paper shows that competition exerts a feedback effect on innovation. First, down- stream competition increases the willingness to pay for a more efficient technology (the direct effect). Second, a sufficiently large innovation may provide the licensees with a robust strate- gic advantage that forces non-adopters out of business. In turn, this raises the licensee’s willingness to pay to survive in the market (the indirect effect). More specifically, if the competition is very intense, even a tiny innovation may entail drastic effects in the market. Moreover, this article shows that royalties do not always imply the complete adoption of a superior technology because of competition’s indirect effect on innovation. An innovator may prefer to license a large innovation to a subset of firms at a discounted price, regardless of the contract scheme enforced. Finally, this article suggests that the removal of inefficient firms is not welfare-improving from a policy perspective.

Suggested Citation

  • Luca Sandrini, 2020. "Innovation, Competition, and Incomplete Adoption of a Superior Technology," "Marco Fanno" Working Papers 0251, Dipartimento di Scienze Economiche "Marco Fanno".
  • Handle: RePEc:pad:wpaper:0251
    as

    Download full text from publisher

    File URL: https://economia.unipd.it/sites/economia.unipd.it/files/20200251.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 701-728.
    2. Steven Berry & Martin Gaynor & Fiona Scott Morton, 2019. "Do Increasing Markups Matter? Lessons from Empirical Industrial Organization," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 44-68, Summer.
    3. Bakaouka, Elpiniki & Milliou, Chrysovalantou, 2018. "Vertical licensing, input pricing, and entry," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 66-96.
    4. Klepper, Steven & Simons, Kenneth L., 2005. "Industry shakeouts and technological change," International Journal of Industrial Organization, Elsevier, vol. 23(1-2), pages 23-43, February.
    5. Maria Alipranti & Chrysovalantou Miliou & Emmanuel Petrakis, 2014. "On Vertical Relations and Technology Adoption Timing," Working Papers 1502, University of Crete, Department of Economics.
    6. Sen, Debapriya & Tauman, Yair, 2007. "General licensing schemes for a cost-reducing innovation," Games and Economic Behavior, Elsevier, vol. 59(1), pages 163-186, April.
    7. Morton I. Kamien & Yair Tauman, 1986. "Fees Versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 471-491.
    8. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    9. Lamoreaux, N., 2019. "The Problem of Bigness: From Standard Oil to Google," Cambridge Working Papers in Economics 1963, Faculty of Economics, University of Cambridge.
    10. Jovanovic, Boyan & MacDonald, Glenn M, 1994. "The Life Cycle of a Competitive Industry," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 322-347, April.
    11. Xavier Vives, 2008. "Innovation And Competitive Pressure," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
    12. Naomi R. Lamoreaux, 2019. "The Problem of Bigness: From Standard Oil to Google," Journal of Economic Perspectives, American Economic Association, vol. 33(3), pages 94-117, Summer.
    13. Michael L. Katz & Carl Shapiro, 1985. "On the Licensing of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 504-520, Winter.
    14. Milliou, Chrysovalantou & Petrakis, Emmanuel, 2011. "Timing of technology adoption and product market competition," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 513-523, September.
    15. Pilar Beneito & Paz Coscollá-Girona & María Engracia Rochina-Barrachina & Amparo Sanchis, 2015. "Competitive Pressure and Innovation at the Firm Level," Journal of Industrial Economics, Wiley Blackwell, vol. 63(3), pages 422-457, September.
    16. Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-583, June.
    17. Hermosilla, Manuel & Wu, Yufei, 2018. "Market size and innovation: The intermediary role of technology licensing," Research Policy, Elsevier, vol. 47(5), pages 980-991.
    18. Álvaro Parra, 2019. "Sequential innovation, patent policy, and the dynamics of the replacement effect," RAND Journal of Economics, RAND Corporation, vol. 50(3), pages 568-590, September.
    19. Marshall, Guillermo & Parra, Álvaro, 2019. "Innovation and competition: The role of the product market," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 221-247.
    20. Alipranti, Maria & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2015. "On vertical relations and the timing of technology adoption," Journal of Economic Behavior & Organization, Elsevier, vol. 120(C), pages 117-129.
    21. Nancy T. Gallini & Brian D. Wright, 1990. "Technology Transfer under Asymmetric Information," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 147-160, Spring.
    22. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
    23. Kamien, Morton I. & Oren, Shmuel S. & Tauman, Yair, 1992. "Optimal licensing of cost-reducing innovation," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 483-508.
    24. Michael L. Katz & Janusz A. Ordover, 1990. "R&D Cooperation and Competition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 137-203.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Navarra, Federico & Pino, Flavio & Sandrini, Luca, 2024. "Mandated data-sharing in hybrid marketplaces," ZEW Discussion Papers 24-051, ZEW - Leibniz Centre for European Economic Research.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Luca Sandrini, 2023. "Price vs Market Share with Royalty Licensing: Incomplete Adoption of a Superior Technology with Heterogeneous Firms," Discussion Papers 2302, Budapest University of Technology and Economics, Quantitative Social and Management Sciences.
    2. Sen, Debapriya & Stamatopoulos, Giorgos, 2016. "Licensing under general demand and cost functions," European Journal of Operational Research, Elsevier, vol. 253(3), pages 673-680.
    3. Sen, Debapriya & Tauman, Yair, 2018. "Patent licensing in a Cournot oligopoly: General results," Mathematical Social Sciences, Elsevier, vol. 96(C), pages 37-48.
    4. Sudipto Bhattacharya & Claude d’Aspremont & Sergei Guriev & Debapriya Sen & Yair Tauman, 2014. "Cooperation in R&D: Patenting, Licensing, and Contracting," International Series in Operations Research & Management Science, in: Kalyan Chatterjee & William Samuelson (ed.), Game Theory and Business Applications, edition 2, chapter 0, pages 265-286, Springer.
    5. Anzhou Zhang, 2022. "Competition and the negative expected social value of cost‐reducing innovation," Manchester School, University of Manchester, vol. 90(1), pages 59-76, January.
    6. Amir, Rabah & Encaoua, David & Lefouili, Yassine, 2014. "Optimal licensing of uncertain patents in the shadow of litigation," Games and Economic Behavior, Elsevier, vol. 88(C), pages 320-338.
    7. Sen, Debapriya, 2005. "Fee versus royalty reconsidered," Games and Economic Behavior, Elsevier, vol. 53(1), pages 141-147, October.
    8. Sen, Debapriya & Stamatopoulos, Giorgos, 2009. "Drastic innovations and multiplicity of optimal licensing policies," Economics Letters, Elsevier, vol. 105(1), pages 7-10, October.
    9. Yair Tauman & Debrapiya Sen, 2012. "Patents and Licenses," Department of Economics Working Papers 12-05, Stony Brook University, Department of Economics.
    10. Sen, Debapriya & Tauman, Yair, 2007. "General licensing schemes for a cost-reducing innovation," Games and Economic Behavior, Elsevier, vol. 59(1), pages 163-186, April.
    11. Luca Sandrini, 2024. "Price Versus Market Share with Royalty Licensing: Incomplete Adoption of a Superior Technology with Heterogeneous Firms," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(2), pages 243-265, March.
    12. Ma, Siyu & Sen, Debapriya & Tauman, Yair, 2022. "Optimal patent licensing: from three to two part tariffs," MPRA Paper 111624, University Library of Munich, Germany.
    13. Gallardo, R. Karina & McCluskey, Jill J. & Rickard, Bradley J. & Akhundjanov, Sherzod B., 2016. "Assessing Innovator and Grower Profit Potential under Different New Plant Variety Commercialization Strategies," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235940, Agricultural and Applied Economics Association.
    14. Carlo Capuano & Iacopo Grassi, 2019. "Imperfect patent protection, licensing, and Social Welfare," Economics Bulletin, AccessEcon, vol. 39(4), pages 2639-2649.
    15. Nisvan Erkal, 2005. "Optimal Licensing Policy in Differentiated Industries," The Economic Record, The Economic Society of Australia, vol. 81(252), pages 51-60, March.
    16. David Encaoua & Yassine Lefouili, 2009. "Licensing ‘Weak’ Patents," Journal of Industrial Economics, Wiley Blackwell, vol. 57(3), pages 492-525, September.
    17. Debapriya Sen & Giorgos Stamatopoulos, 2009. "Technology Transfer Under Returns To Scale," Manchester School, University of Manchester, vol. 77(3), pages 337-365, June.
    18. repec:ebl:ecbull:v:4:y:2008:i:17:p:1-11 is not listed on IDEAS
    19. Arijit Mukherjee, 2010. "Technology licensing under convex costs," Discussion Papers 10/05, University of Nottingham, School of Economics.
    20. repec:ebl:ecbull:v:15:y:2005:i:15:p:1-10 is not listed on IDEAS
    21. Mukherjee, Arijit, 2010. "Licensing a new product: Fee vs. royalty licensing with unionized labor market," Labour Economics, Elsevier, vol. 17(4), pages 735-742, August.
    22. Giorgos Stamatopoulos, 2008. "On the possibility of licensing in a market with logit demand functions," Economics Bulletin, AccessEcon, vol. 4(17), pages 1-11.

    More about this item

    Keywords

    Innovation; Licensing; Oligopoly; Competition;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pad:wpaper:0251. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Raffaele Dei Campielisi (email available below). General contact details of provider: https://edirc.repec.org/data/dspadit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.