Patent Licensing and Technological Catch-Up in a Heterogeneous Duopoly

  • Bruno D. Badia


A cost-reducing innovation is available to Cournot duopolists through licensing. The firms are ex ante heterogeneous and adoption of the innovation impacts them differently. Is it possible for the inefficient duopolist to catch up with its efficient rival? Under certain conditions, yes. The conditions, however, are stringent: It is not sufficient, for instance, that the innovation promotes a change in the efficiency rank of the firms.


Patent licensing Cournot duopoly with heterogeneous firms Cost-reducing innovation Technological catch-up 



I am thankful to the General Editor, Larry White, and two anonymous referees for thoughtful comments and suggestions. I am also thankful to Yair Tauman and participants at the 28th Stony Brook International Conference on Game Theory. Any errors are my own.


  1. Arrow, K. (1962). Economic welfare and the allocation of resources for invention. In The rate and direction of inventive activity: Economic and social factors. NBER chapters. Cambridge: National Bureau of Economic Research, Inc. (pp. 609–626).Google Scholar
  2. Badia, B. D., Tauman, Y., & Tumendemberel, B. (2014). A note on Cournot equilibrium with positive price. Economics Bulletin, 34(2), 1229–1234.Google Scholar
  3. Dixit, A. (1979). A model of duopoly suggesting a theory of entry barriers. Bell Journal of Economics, 10(1), 20–32.CrossRefGoogle Scholar
  4. Gilbert, R. J., & Newbery, D. M. G. (1982). Preemptive patenting and the persistence of monopoly. The American Economic Review, 72(3), 514–526.Google Scholar
  5. Kamien, M. I. (1992). Patent licensing. In R. Aumann & S. Hart (Eds.), Handbook of game theory with economic applications (1st ed., Vol. 1, pp. 331–354). Amsterdam: Elsevier.CrossRefGoogle Scholar
  6. Kamien, M. I., Oren, S. S., & Tauman, Y. (1992). Optimal licensing of cost-reducing innovation. Journal of Mathematical Economics, 21, 483–508.CrossRefGoogle Scholar
  7. Kamien, M. I., & Schwartz, N. L. (1982). Market structure and innovation. Cambridge: Cambridge University Press.Google Scholar
  8. Kamien, M. I., & Tauman, Y. (1984). The private value of a patent: A game theoretic analysis. In Bös, D., Bergson, A., & Meyer, J. (Eds.), Entrepreneurship. Vol. 4 of Zeitschrift für Nationalökonomie Journal of Economics Supplementum. Vienna: Springer (pp. 93–118).Google Scholar
  9. Kamien, M. I., & Tauman, Y. (1986). Fees versus royalties and the private value of a patent. Quarterly Journal of Economics, 101, 471–491.CrossRefGoogle Scholar
  10. Katz, M. L., & Shapiro, C. (1986). How to license intangible property. The Quarterly Journal of Economics, 101(3), 567–89.CrossRefGoogle Scholar
  11. Kimmel, S. (1992). Effects of cost changes on oligopolists’ profits. The Journal of Industrial Economics, 40(4), 441–449.CrossRefGoogle Scholar
  12. Kwoka, J . E. (1982). Regularity and diversity in firm size distributions in U.S. industries. Journal of Economics and Business, 34(4), 391–395.CrossRefGoogle Scholar
  13. Poddar, S., & Sinha, U. B. (2010). Patent licensing from a high-cost firm to a low-cost firm. Economic Record, 86, 384–395.CrossRefGoogle Scholar
  14. Reinganum, J. F. (1983). Uncertain innovation and the persistence of monopoly. The American Economic Review, 73(4), 741–748.Google Scholar
  15. Rtischev, D. (2009). Licensing of a lower-cost production process to an asymmetric Cournot duopoly. Gakushuin Economic Papers, 45(4), 325–336.Google Scholar
  16. Scherer, F. M., & Ross, D. (1990). Industrial market structure and economic performance. Boston: Houghton Mifflin Company.Google Scholar
  17. Singh, N., & Vives, X. (1984). Price and quantity competition in a differentiated duopoly. RAND Journal of Economics, 15(4), 546–554.CrossRefGoogle Scholar
  18. Stamatopoulos, G., & Tauman, T. (2009). On the superiority of fixed fee over auction in asymmetric markets. Games and Economic Behavior, 67(1), 331–333.CrossRefGoogle Scholar
  19. Tauman, Y., Weiss, Y., & Zhao, C. (2017). Bargaining in patent licensing with inefficient outcomes. Department of Economics Working Paper, Stony Brook University.Google Scholar
  20. Vives, X. (1999). Oligopoly pricing: Old ideas and new tools. Cambridge: The MIT Press.Google Scholar
  21. Wang, K.-C. A., Liang, W.-J., & Chou, P.-S. (2013). Patent licensing under cost asymmetry among firms. Economic Modelling, 31(C), 297–307.CrossRefGoogle Scholar
  22. Zhao, J. (2001). A characterization for the negative welfare effects of cost reduction in Cournot oligopoly. International Journal of Industrial Organization, 19(3–4), 455–469.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of EconomicsRhodes CollegeMemphisUSA

Personalised recommendations