Location equilibrium with asymmetric firms: the role of licensing
It is known that if exogenous cost heterogeneities between the firms in a spatial duopoly model are large, then the model does not have a pure-strategy equilibrium in location choices. It is also known that when these heterogeneities are stochastically determined after firms choose their locations, spatial agglomeration can appear. To tackle these issues, the current paper modifies the spatial framework by allowing firms to exchange the cost-efficient production technology via royalties. It is shown that technology transfer guarantees the existence of a location equilibrium in pure strategies and that maximum differentiation appears in the market.
KeywordsLocation model Asymmetric firms Licensing Royalty R&D
JEL ClassificationD43 D45
Unable to display preview. Download preview PDF.
- Kamien MI, Tauman Y (1984) The private value of a patent: a game theoretic analysis, Z. Nationalökon. 4(Suppl): 93–118Google Scholar
- Macho-Stadler I, Pérez-Castrillo JD (1991) Contrats de licence et asymétrie d’ information. Ann Econ Statist 24: 189–208Google Scholar
- Shapiro C (1985) Patent licensing and R&D rivalry. Am Econ Rev Pap Proc 75: 25–30Google Scholar