NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Effects of Downstream Competition on Upstream Innovation and Licensing

Jean-Etienne de Bettignies, Bulat Gainullin, Hua Fang Liu, David T. Robinson

NBER Working Paper No. 25166
Issued in October 2018
NBER Program(s):Productivity, Innovation, and Entrepreneurship

We study how competition between two downstream firms affects an upstream innovator's innovation strategy, which includes selecting how much innovation to produce and whether to license this innovation to one (targeted licensing) or both (market-wide licensing) downstream competitors. Our model points to a U-shaped relationship between downstream competition and upstream innovation: at low levels of competition, market-wide licensing is optimal and competition reduces innovation, while at high levels of competition targeted licensing is optimal and competition increases innovation. Empirical analysis using a large panel of US data provides clear support for these predictions linking competition, innovation and licensing.

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Document Object Identifier (DOI): 10.3386/w25166

 
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