Commitment and excess capacity with licensing: an old debate with a new look
The theoretical literature demonstrates that excess capacity is not an equilibrium phenomenon if each firm’s marginal revenue decreases with the competitor’s output. We show that such a conclusion can be overturned in the presence of technology licensing. We show that in the presence of technology licensing, a firm may hold excess capacity because it increases the benefit from technology licensing.
KeywordsCapacity commitment Entry Excess capacity Incumbent Licensing
JEL ClassificationL13 D43 O33
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