Working Paper: NBER ID: w25166
Authors: Jean-Etienne de Bettignies; Bulat Gainullin; Hua Fang Liu; David T. Robinson
Abstract: 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.
Keywords: competition; innovation; licensing; U-shaped relationship
JEL Codes: L22; L24; O31; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reductions in import tariff rates (F13) | downstream competition (L19) |
| downstream competition (L19) | upstream innovation (O36) |
| downstream competition (below threshold) (D41) | upstream innovation (O36) |
| downstream competition (above threshold) (L13) | upstream innovation (O36) |
| downstream competition (L19) | licensing strategies (D45) |
| licensing strategies (D45) | upstream innovation (O36) |