Competition and Innovation in Markets for Technology
65 Pages Posted: 9 Mar 2014 Last revised: 17 Nov 2022
There are 2 versions of this paper
Competition and Innovation in Markets for Technology
The Effects of Downstream Competition on Upstream Innovation and Licensing
Date Written: June 22, 2022
Abstract
We examine the impact of product market competition on innovation in markets for technology. An innovator makes an investment in quality-improving innovation that can be licensed to one (targeted licensing) or all (market-wide licensing) product market competitors. Our model points to a U-shaped relationship between competition in licensee product markets and innovation in the market for technology: 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 U.S. data provides clear support for these predictions linking competition, innovation and licensing.
Keywords: Competition, Licensing, Innovation, Import Tariffs
JEL Classification: L22, L24, O31, O32
Suggested Citation: Suggested Citation