NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Hua Fang Liu

Smith School of Business
Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

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Institutional Affiliation: Queens University

NBER Working Papers and Publications

October 2018The Effects of Downstream Competition on Upstream Innovation and Licensing
with Jean-Etienne de Bettignies, Bulat Gainullin, David T. Robinson: w25166
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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